A two-year semi-annual floating rate currency swap takes place between A (UK based) and B (Aus based). A wants to borrow in Australian dollars and B wants to borrow in British pounds. The original exchange rate is $1.50 for £1.00 and at the end of two years it is $1.30 for £1.00. Interest rates in Aus were 5% at initiation, while interest rates in the UK were 7% at initiation. The principal is $5 million and interest payments are determined in advance, and payable in arrears. At initiation of the swap, A will pay the following to amount to B: Group of answer choices £3.33 million $3.33 million $5.00 million £7.5 million zero, since no cash flows are exchanged at the start of the swap
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- Currently, the spot exchange rate is $1.51 per £ and the three-month forward exchange rate is $1.53 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,510,000 or £1,000,000. Required: a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? c. Explain how the IRP will be restored as a result of covered arbitrage activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? Note: Do not round intermediate calculations. Interest arbitrage Arbitrage profit Borrow in the U.S. and invest in the U.K. Hedge exchange rate risk by selling British pounds forward. < Required A Required CCurrently, the spot exchange rate is $1.67 per £ and the three-month forward exchange rate is $1.69 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,670,000 or £1,000,000. Required: a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? c. Explain how the IRP will be restored as a result of covered arbitrage activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine whether the interest rate parity is currently holding. Determine whether the interest rate parity is currently holding.Currently, the spot exchange rate is CHF 0.89/$ and the three-month forward exchange rate is CHF 0.86/$. The three-month interest rate is 5.6% per annum in the U.S. and 4.0% per annum in Switzerland. Assume that you can borrow as much as $1,120,000 or CHF 1,000,000. A. Determine whether the interest rate parity is currently holding. B. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. C. Explain how the IRP will be restored as a result of covered arbitrage activities.
- Currently, the spot exchange rate is $1.56 per £ and the three-month forward exchange rate is $1.58 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,560,000 or £1,000,000. Required: Determine whether the interest rate parity is currently holding. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? Explain how the IRP will be restored as a result of covered arbitrage activities.Currently, the spot exchange rate is $0.84 per A$ and the one-year forward exchange rate is $0.80 per A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,190,476, which is equivalent to $1,000,000 at the current spot rate. Required: Determine if IRP is holding between Australia and the United States. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms. What will be your arbitrage profit? Explain how IRP will be restored as a result of arbitrage transactions you carry out above.The spot exchange rate between the Swiss franc (CHF) and the US dollar (USD) is currently 0.9786 CHF/USD. Six-month interest rates are 2% per annum in the United States and -0.5% (yes, negative) per annum in Switzerland. What is the implied forward rate in CHF/USD?
- Spot Exchange Rate is GBP 1.83155 = 1 OMR (For Immediate Delivery). Instead of buying GBP immediately you can enter into a contract with the bank to deliver the currency after 6 months. The bank has quoted 6 months forward rate as GBP1.83355 = 1 OMR. (Home Currency is OMR, which is given as Indirect quotes).A Canadian corporation (ACC) has just entered into a two-year currency swap contract with Big Dealer Bank (BDB). The swap contract requires ACC to make semi-annual payments in Canadian dollars (C$) and receive semi-annual payments in U.S. dollars (US$). The notional amount in Canadian dollars is C$25 million. The accrual period for the swap is 180/360, assuming 360 days per year. The US$/C$ spot exchange rate is 0.77, with the Canadian dollar being the domestic currency for ACC. The term structures of C$ LIBOR and US$ LIBOR are as follows: Days C$ LIBOR (%) US$ LIBOR (%) 180 0.50 0.55 360 0.60 0.65 540 0.65 0.75 720 0.70 0.85 c. Calculate the first semi-annual payments for the swap if the terms of the swap specify that ACC receives fixed rates and pays floating rates. d. What is the value of the currency swap at the time of contract initiation?The spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc). Interest rates in the U.S. and Switzerland were 0.65% and 0.20% per annum, respectively, with continuous compounding. 1.If there is no arbitrage opportunity, what is the three-month forward exchange rate ($ per franc)? 2.Suppose that the three-month forward exchange rate was 1.0300 ($ per franc). Is there an arbitrage? If so, construct the arbitrage that results in zero cash flow today and positive cash flow (in USD) in three months. 3.Calculate the arbitrage profit (in USD) when you implement the arbitrage strategy with 50 Swiss Franc.
- A Canadian corporation (ACC) has just entered into a two-year currency swap contract with Big Dealer Bank (BDB). The swap contract requires ACC to make semi-annual payments in Canadian dollars (C$) and receive semi-annual payments in U.S. dollars (US$). The notional amount in Canadian dollars is C$25 million. The accrual period for the swap is 180/360, assuming 360 days per year. The US$/C$ spot exchange rate is 0.77, with the Canadian dollar being the domestic currency for ACC. The term structures of C$ LIBOR and US$ LIBOR are as follows: Days C$ LIBOR (%) US$ LIBOR (%) 180 0.50 0.55 360 0.60 0.65 540 0.65 0.75 720 0.70 0.85 a. What is the notional amount in U.S. dollars? b. Calculate the fixed rates in Canadian and U.S. dollars.A Canadian corporation (ACC) has just entered into a two-year currency swap contract with Big Dealer Bank (BDB). The swap contract requires ACC to make semi-annual payments in Canadian dollars (C$) and receive semi-annual payments in U.S. dollars (US$). The notional amount in Canadian dollars is C$25 million. The accrual period for the swap is 180/360, assuming 360 days per year. The US$/C$ spot exchange rate is 0.77, with the Canadian dollar being the domestic currency for ACC. The term structures of C$ LIBOR and US$ LIBOR are as follows: Days C$ LIBOR (%) US$ LIBOR (%) 180 0.50 0.55 360 0.60 0.65 540 0.65 0.75 720 0.70 0.85 e. Assume 240 days has passed since the initiation of the currency swap contract. The new exchange rate is US$0.85/C$. Assume that, on Day 180, the 180-day C$ and U.S.$ LIBORs remained the same, at 0.5% and 0.55%, respectively. Calculate the value of the swap given the following LIBOR term structures at time 240.…The spot foreign exchange rate for the US dollar is 0.69056 Euros. Yourcompany agrees to pay a bank 63,694 Euros in 3 months in exchange for 100,000US dollars. This is a foreign currency forward contract. No cash is exchanged upfront. Give the underlying asset, the maturity date, and the forward rate (for theUS dollar). Compare to the spot forward rate. Conclude