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Postby mayankmundhra30 » Wed Aug 24, 2016 5:04 am

What is the value of following fixed to fixed currency swap to the fixed payer in USD if yield curve in US and Great Britain is flat at 3% and 5% respectively:
•Company X pays 8% in GBP to Company Y and receives 6% in USD
•Company X pays principle amount of USD 200 million to Company Y and receives GBP 125 million at the beginning of the swap
Choose one answer.
a. Profit of 20.47 million Correct
b. Profit of 87.84 million Incorrect
c. Loss of 20.47 million Incorrect
d. Loss of 87.84 million Incorrect
The correct answer is A ... Ans_22.jpg.
The cash flows in USD and GBP are discounted to arrive at discounted cash flows in 3 years. USD equivalent cash flow to Company X is GBP 134.76*1.5 = USD 202.13
Hence net USD equivalent positive value to Company X is USD 20.47

how do you get 20.47? please explain

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Postby edupristine » Wed Nov 02, 2016 10:06 am

Hi Mayank

the conversion rate(swap rate) is not given in that question so here you can put 1.5 as conversion rate.

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