2. Take into account a two-year currency swap with semiannual payments. The US dollar is the local currency, whereas the British pound is the foreign currency. The current pound-to-dollar exchange rate is $1.38. A. Determine the annualized fixed rates the two currencies, given the following countries' term structures: US Term Structure Lo(180) = 0.0579 Lo(360) = 0.0608 Lo(540) = 0.0622 Lo(720) = 0.0661 UK Term Structure L (180) = 0.0488 L(720) = 0.0547 B. Now let's fast forward 120 days. The new exchange rate is $1.32 per pound, and the new term structures of the countries are as follows: US Term Structure Lo(180) = 0.0607 Lo(360) = 0.0632 Lo(540) = 0.0651 Lo(720) = 0.0693 UK Term Structure L(360) = 0.0529 Assume the notional principal is $1 (or the equivalent in British pounds). Calculate the following swaps' market values: B.1 Pay £ fixed and received $ fixed. B.2 Pay £ floating and receive $ fixed. B.3 Pay £ floating and receive $ floating. B.4 Pay £ fixed and receive $ floating.
2. Take into account a two-year currency swap with semiannual payments. The US dollar is the local currency, whereas the British pound is the foreign currency. The current pound-to-dollar exchange rate is $1.38. A. Determine the annualized fixed rates the two currencies, given the following countries' term structures: US Term Structure Lo(180) = 0.0579 Lo(360) = 0.0608 Lo(540) = 0.0622 Lo(720) = 0.0661 UK Term Structure L (180) = 0.0488 L(720) = 0.0547 B. Now let's fast forward 120 days. The new exchange rate is $1.32 per pound, and the new term structures of the countries are as follows: US Term Structure Lo(180) = 0.0607 Lo(360) = 0.0632 Lo(540) = 0.0651 Lo(720) = 0.0693 UK Term Structure L(360) = 0.0529 Assume the notional principal is $1 (or the equivalent in British pounds). Calculate the following swaps' market values: B.1 Pay £ fixed and received $ fixed. B.2 Pay £ floating and receive $ fixed. B.3 Pay £ floating and receive $ floating. B.4 Pay £ fixed and receive $ floating.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter13: Emerging Topics In Managerial Accounting
Section: Chapter Questions
Problem 47E: Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot...
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Transcribed Image Text:2. Take into account a two-year currency swap with semiannual
payments. The US dollar is the local currency, whereas the
British pound is the foreign currency. The current
pound-to-dollar exchange rate is $1.38.
A. Determine the annualized fixed rates the two currencies,
given the following countries' term structures:
US Term Structure
UK Term Structure
Lo(180) = 0.0579
L(180) = 0.0488
%3D
Lo(360) = 0.0608
Lo(540) = 0.0622
Lo(720) = 0.0661
L(720):
= 0. 0547
B. Now let's fast forward 120 days. The new exchange rate is
$1.32 per pound, and the new term structures of the
Countries are as follows:
US Term Structure
UK Term Structure
Lo(180) = 0.0607
%3D
Lo(360) = 0.0632
L*(360) = 0.0529
Lo(540)
= 0.0651
Lo(720) = 0.0693
Assume the notional principal is $1 (or the equivalent in
British pounds). Calculate the following swaps' market
values:
B.1 Pay £ fixed and received $ fixed.
B.2 Pay £ floating and receive $ fixed.
B.3 Pay £ floating and receive $ floating.
B.4 Pay £ fixed and receive $ floating.
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