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 principal 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:
Determine the value of the swap for each of the following cases:
i. Dollars fixed, pounds fixed
ii. Dollars fixed, pounds floating
iii. Dollars floating, pounds floating
iv. Dollars floating, pounds fixed
|
Days
|
Dollar LIBOR
|
Pound LIBOR
|
|
180
|
7.00%
|
6.50%
|
|
360
|
7.25
|
7.10
|
|
540
|
7.45
|
7.50
|
|
720
|
7.55
|
8.00
|