you have been provided with the following


You have been provided with the following information on a fixed-fixed USD-GBP currency swap, thespot exchange rate between USD and GBP, and the USD and GBP yield curves:

  •     Five-yearswap5.5percentfixedcouponUSDfor6.125percentfixedcouponGBP
  •     NotionalprincipalofUSD15,000,000
  •     SpotexchangerateGBP1=USD1.35
  •     CurrentdiscountyieldcurvesUSD2.35percentflat,GBP2.00percentflat.


(a)You wish to value the swap.  What assumptions must you make to use the information that has been provided to you?

(b)  What is the time zero value of the swap to the GBP receiver?

(c)What settlement payment will ensure fair value against the swap to both parties, and to whom must it be paid?


(d)What is the implied exchange rate between USD and GBP for the interest payments made under the swap? Should you expect this rate to match the current value of the exchange rate?

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