In Nov 2007 when 1.00 = $2.00, conditions in the four year market indicated that currency...

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In Nov 2007 when 1.00 = $2.00, conditions in the four year market indicated that currency swap banks were prepared to pay or receive fixed dollars at 4% of dollar face values against receiving or paying 5% of the face value equivalent in pounds. These mid market rates are for annual rates and single annual payments in arrears. Both term structures are flat and not expected to change. Swap Xld Mid market currency swap rates Years p.a. PV Swap Cpp PMT p.a. FV $200M par currency swap 4 4.0% -$200M $8.00M $200M 100M par currency swap 4 5.0% -100M 5.00M 100M $200M fixed $ p.a. 3.90% fixed $ p.a. 3.90% Now you discover that in Nov 2007 your firm, Bank Inc, intermediated between back to back annual currency swaps with two other firms Def plc (UK) and Dis inc (US). These are shown diagrammatically below for the four year bond borrowings and currency swaps. fixed $p.a. 4.10% In Nov 2007 when 1.00 = $2.00, conditions in the four year market indicated that currency swap banks were prepared to pay or receive fixed dollars at 4% of dollar face values against receiving or paying 5% of the face value equivalent in pounds. These mid market rates are for annual rates and single annual payments in arrears. Both term structures are flat and not expected to change. Swap Xld Mid market currency swap rates Years p.a. PV Swap Cpp PMT p.a. FV $200M par currency swap 4 4.0% -$200M $8.00M $200M 100M par currency swap 4 5.0% -100M 5.00M 100M $200M fixed $ p.a. 3.90% fixed $ p.a. 3.90% Now you discover that in Nov 2007 your firm, Bank Inc, intermediated between back to back annual currency swaps with two other firms Def plc (UK) and Dis inc (US). These are shown diagrammatically below for the four year bond borrowings and currency swaps. fixed $p.a. 4.10%