Question

16. A U.S. corporation is considering entering into a currency swap that will call for the firm to pay dollars and receive British pounds. The dollar notional amount will be $35 million. The swap will call for semiannual payments using the adjustment 180/360. The exchange rate is $1.60. The term structures of dollar LIBOR and pound LIBOR are as follows: 1 Term 90 da 180 da Da ys 180 360 540 720 Dollar LIBOR (%) 7.00 7.25 7.45 7.55 Pound LIBOR (%) 6.50 7.10 7.50 8.00 a. Answer the following questions. a. Determine the appropriate pound notional amount. Use this result in each of the remain- C. ing questions. pounds. first payment on the swap: b. Determine the fixed rates in dollars and in c. For each of the following cases, determine the i. Dollars fixed, pounds fixed ii. Dollars fixed, pounds floating iii. Dollars floating, pounds floating iv. Dollars floating, pounds fixed Term R 60 150 d. Now assume it is 120 days into the life of the swap. The new exchange rate is $1.42. The new term structures are as follows: 18. You hav

Answer 1

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