Consider the following currency swap of coupon interest on the following assets 5 percent (annual coupon) fixed rate U S $1 million bond 5 percent (annual coupon) fixed rate bond denominated in Swiss francs (SF) Spot exchange rate SF1 5 $ a What is the face value of the SF bond if the investments a...

a US 1 million is equivalent to SF15 million face value b Interest payments on the US bond are 005US ...

Consider the following currency swap of coupon interest on the following assets: 5 percent (annual coupon) fixed-rate

Question:

Consider the following currency swap of interest on the following assets:
5 percent (annual fixed-rate U.S. $1 million bond
5 percent (annual fixed-rate bond denominated in Swiss francs (SF)
Spot SF1.5/$
a. What is the of the SF bond if the investments are equivalent at spot rates?
b. What are the realized cash flows, assuming no change in spot exchange rates? What are the net cash flows on the swap?
c. What are the cash flows if the spot falls to SF0.50/$? What are the net cash flows on the swap? the net cash flows on the swap?
d. What are the cash flows if the spot rises to SF2.25/$? What are the net cash flows on the swap?
e. Describe the underlying cash position that would prompt the FI to hedge by swapping dollars in exchange for Swiss francs. Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...