At inception, the swap rate on a plain vanilla $100m interest rate swap was set at...

 

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At inception, the swap rate on a plain vanilla $100m interest rate swap was set at sp= 6% pa (simple rate). The previous reset date was 15th January when the 6-month LIBOR rate was 5.5% p.a. (simple interest). The tenor in the swap is 6-months. It is now 15th March and the yield curve is "flat" at 5%pa (continuously compounded). The next (LIBOR) reset date is the 15th July and the swap matures on the 15th January (in 10 months time). Required i) What is the value of the "receive-fixed, pay-floating" swap (on 15th March). ii) If the swap had been a 10-year swap, would the change in value have been larger or smaller than for the 10-month maturity swap? Briefly explain. (25%) b) A currency swap (annual payments) has a remaining life of 15 months with the next payment dates in 3 months and 15 months. In the swap, interest payments are exchanged at a fixed (coupon) rate of 6% on AUD50m (Australian dollars) for fixed interest payments at 4% on $30m (USD). The term structure of interest rates in both countries is flat with rus= 8% pa and raus = 10%pa (continuously compounded). The current exchange rate is 0.65 USD per AUD. Required What is the value of the swap to the party receiving dollars and paying sterling? (25%) At inception, the swap rate on a plain vanilla $100m interest rate swap was set at sp= 6% pa (simple rate). The previous reset date was 15th January when the 6-month LIBOR rate was 5.5% p.a. (simple interest). The tenor in the swap is 6-months. It is now 15th March and the yield curve is "flat" at 5%pa (continuously compounded). The next (LIBOR) reset date is the 15th July and the swap matures on the 15th January (in 10 months time). Required i) What is the value of the "receive-fixed, pay-floating" swap (on 15th March). ii) If the swap had been a 10-year swap, would the change in value have been larger or smaller than for the 10-month maturity swap? Briefly explain. (25%) b) A currency swap (annual payments) has a remaining life of 15 months with the next payment dates in 3 months and 15 months. In the swap, interest payments are exchanged at a fixed (coupon) rate of 6% on AUD50m (Australian dollars) for fixed interest payments at 4% on $30m (USD). The term structure of interest rates in both countries is flat with rus= 8% pa and raus = 10%pa (continuously compounded). The current exchange rate is 0.65 USD per AUD. Required What is the value of the swap to the party receiving dollars and paying sterling? (25%)

Answer rating: 100% (QA)

I To calculate the value of the receivefixed payfloating swap on 15 March we need to determine the present value of future cash flows Given Swap notional amount 100 million Previous reset date LIBOR r... View the full answer