1.Consider a fixed-for-fixed 1-year $100,000 semiannual currency swap with rates of 5.2 percent in USD and 4.8 percent in CHF, originated when the exchange rate is $0.34. 90 days later, the exchange rate is $0.35 and the term structure is:
| 90 days | 270 days |
LIBOR | 5.2% | 5.6% |
Swiss | 4.8% | 5.4% |
What is the value of the swap to the USD payer?
A) -$2,719.
B) $2,814.
C) $2,719.
D) -$2,814.
2. 90 days ago the exchange rate for the Canadian dollar (C$) was $0.83 and the term structure was
| 180 days | 360 days |
LIBOR | 5.6% | 6% |
CDN | 4.8% | 5.4%. |
A swap was initiated with payments of 5.3 percent fixed in C$ and floating rate payments in USD on a notional principal of USD 1 million with semiannual payments.
90 days have passed, the exchange rate for C$ is $0.84 and the yield curve is
| 90 days | 270 days |
LIBOR | 5.2% | 5.6% |
CDN | 4.8% | 5.4% |
What is the value of the swap to the floating-rate payer?
A) -$2,708.
B) $3,472.
C) $10,125.
D) -$3,472.
3.A
At the termination of the swap, firm F gives firm
A) 4 million foreign units.
B) $1,750,000.
C) $2 million.
D) 3,500,000 foreign units.
4.Consider a one-year currency swap with semiannual payments. The payments are in U.S. dollars and euros. The current exchange rate of the euro is $1.03 and interest rates are
| 180 days | 360 days |
LIBOR | 5.6% | 6.0% |
Euribor | 4.8% | 5.4% |
What is the fixed rate in euros?
A) 2.659%.
B) 5.245%.
C) 2.538%.
D) 5.318%.
5.The current U.S. dollar ($) to Canadian dollar (C$) exchange rate is 0.7. In a $1 million currency swap, the party that is entering the swap to hedge existing exposure to C$-denominated fixed-rate liability will:
A) pay floating in C$.
B) receive floating in C$.
C) receive $1 million at the termination of the swap.
D) pay C$1,428,571 at the beginning of the swap.
1.Consider a fixed-for-fixed 1-year $100,000 semiannual currency swap with rates of 5.2 percent in USD and 4.8 percent in CHF, originated when the exchange rate is $0.34. 90 days later, the exchange rate is $0.35 and the term structure is:
| 90 days | 270 days |
LIBOR | 5.2% | 5.6% |
Swiss | 4.8% | 5.4% |
What is the value of the swap to the USD payer?
A) -$2,719.
B) $2,814.
C) $2,719.
D) -$2,814.
The correct answer was C)
The present value of the fixed payments on one CHF is 0.024/1.012 + 1.024/1.0405 = 1.00786.
At the current exchange rate the value is 1.00786 × 0.35 = USD 0.35275.
The notional amount is 100,000/.34 = 294,118 CHF so the dollar value of the CHF payments is 0.35275 × 294,118 = $103,750.
The present value of the USD payments is (0.026/1.013 + 1.026/1.042) × 100,000 = $101,031.
The value of the swap to the dollar payer is 103,750 – 101,031 = $2,719.
2. 90 days ago the exchange rate for the Canadian dollar (C$) was $0.83 and the term structure was
| 180 days | 360 days |
LIBOR | 5.6% | 6% |
CDN | 4.8% | 5.4%. |
A swap was initiated with payments of 5.3 percent fixed in C$ and floating rate payments in USD on a notional principal of USD 1 million with semiannual payments.
90 days have passed, the exchange rate for C$ is $0.84 and the yield curve is
| 90 days | 270 days |
LIBOR | 5.2% | 5.6% |
CDN | 4.8% | 5.4% |
What is the value of the swap to the floating-rate payer?
A) -$2,708.
B) $3,472.
C) $10,125.
D) -$3,472.
The correct answer was C)
The present value of the USD floating-rate payments is 1.028/1.013 = 1.014808 × 1,000,000 = $1,014,807.
The present value of the fixed C$ payments per 1 CDN is 0.0265/ 1.012 + 1.0265/1.0405 = 1.012731 and for the whole swap amount, in USD is 1.012731 × 0.84 × 1,000,000/.83 = $1,024,932.
-1,014,807 + 1,024,932 = $10,125.
3.A
At the termination of the swap, firm F gives firm
A) 4 million foreign units.
B) $1,750,000.
C) $2 million.
D) 3,500,000 foreign units.
The correct answer was C)
At termination, the notional principal will be exchanged. Firm F gives back what it borrowed, $2 million, and the terminal exchange rate is not used.
4.Consider a one-year currency swap with semiannual payments. The payments are in U.S. dollars and euros. The current exchange rate of the euro is $1.03 and interest rates are
| 180 days | 360 days |
LIBOR | 5.6% | 6.0% |
Euribor | 4.8% | 5.4% |
What is the fixed rate in euros?
A) 2.659%.
B) 5.245%.
C) 2.538%.
D) 5.318%.
The correct answer was D)
The present values of 1 euro received in 180 days and 1 euro received in 360 days are:
1/(1 + 0.048 × (180/360)) = 0.9766 and 1/1.054 = 0.9488
The fixed rate in euros is (1 - 0.9488) / (0.9766 + 0.9488) = 0.026592 × (360/180) = 5.318%. The notional principal is 100,000/1.03 = 97,087 euros.
5.The current U.S. dollar ($) to Canadian dollar (C$) exchange rate is 0.7. In a $1 million currency swap, the party that is entering the swap to hedge existing exposure to C$-denominated fixed-rate liability will:
A) pay floating in C$.
B) receive floating in C$.
C) receive $1 million at the termination of the swap.
D) pay C$1,428,571 at the beginning of the swap.
The correct answer was D)
The receive-fixed C$ position will pay 1,000,000/0.7 = C$1,428,571 at swap inception (in exchange for $1 million) and get it back at termination.
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