Design a currency swap strategy

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Reference no: EM131325701

The U.K. manager of an international bond portfolio would like to synthetically sell a large position in a French government bond, denominated in euros. The bond is selling at its par value of €46.15 million, which is equivalent to £30 million at the current exchange rate of £0.65. The bond pays interest at a fixed rate of 5.2 percent annually for 10 years. The manager would like to sell the bond and invest the proceeds in a pound-denominated floating-rate bond.

Design a currency swap strategy that would achieve the desired objective and identify the payments that would occur on the overall position, which includes both the French bond and the swap.

The fixed rates on the currency swap are 4.9 percent in pounds and 5.7 percent in euros.

Reference no: EM131325701

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