Question: Task 4-3 (12 points) Suppose that the term structure of interest rates is flat in the United States and in the United Kingdom. The USD

Task 4-3 (12 points) Suppose that the term structure of interest

Task 4-3 (12 points) Suppose that the term structure of interest rates is flat in the United States and in the United Kingdom. The USD interest rate is 5% per annum and the GBP interest rate is 6% per annum. The current FX spot rate is 1.498 USD/GBP. Under the terms of a swap agreement, a financial institution pays 6% per annum in USD and receives 8% per annum in GBP. The swap principals in the two currencies are 15 million USD and 10 million GBP. Payments are exchanged every year with one exchange having just taken place. The swap will last four more years. a. What is the amount of the annual payments in GBP using the current FX spot rate? The amount is ) GBP. (round to integer GBP) b. What is the present value of all the future incoming payment streams to the financial institution? The present value is ) GBP. (round to integer GBP) c. What is the GBP value of the swap to the financial institution? The swap value is ) GBP. (round to integer GBP) d. What is the implied contractual exchange rate of the final currency exchange? The implied contractual exchange rate is ) USD/GBP. (round to 4 decimals) Task 4-3 (12 points) Suppose that the term structure of interest rates is flat in the United States and in the United Kingdom. The USD interest rate is 5% per annum and the GBP interest rate is 6% per annum. The current FX spot rate is 1.498 USD/GBP. Under the terms of a swap agreement, a financial institution pays 6% per annum in USD and receives 8% per annum in GBP. The swap principals in the two currencies are 15 million USD and 10 million GBP. Payments are exchanged every year with one exchange having just taken place. The swap will last four more years. a. What is the amount of the annual payments in GBP using the current FX spot rate? The amount is ) GBP. (round to integer GBP) b. What is the present value of all the future incoming payment streams to the financial institution? The present value is ) GBP. (round to integer GBP) c. What is the GBP value of the swap to the financial institution? The swap value is ) GBP. (round to integer GBP) d. What is the implied contractual exchange rate of the final currency exchange? The implied contractual exchange rate is ) USD/GBP. (round to 4 decimals)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Finders Investigative Services is an investigative services firm that is owned and operated by Stacy Tanner. On June 30, 2016, the end of the fiscal year, the accountant for Finders Investigative...

Task 5-1 (12 points) Suppose that the term structure of interest rates is flat in the United States and in the United Kingdom. The USD interest rate is 6% per annum and the GBP interest rate is 7%...

1) An eight-month European put option on a dividend-paying stock is currently selling for $3. The stock price is $30, the strike price is $32, and the risk-free interest rate is 8% per annum. The...

Suppose that the term structure of interest rates is flat in England and Germany. The GBP interest rate is 5% per annum and the EUR rate is 4% per annum. In a swap agreement, a financial institution...

Suppose that the term structure of interest rates is flat in the United States and in the United Kingdom. The USD interest rate is 5.5% per annum and the GBP interest rate is 6.5% per annum. The...

Suppose that the term structure of interest rates is flat in the United States and in the United Kingdom. The USD interest rate is 6% per annum and the GBP interest rate is 7% per annum. The current...

1) Suppose that the term structure of interest rates is flat in the United States and Australia. The USD interest rate is 7% per annum and the AUD rate is 9% per annum. The current value of the AUD...

Suppose that the term structure of interest rates is flat in the United States and Australia. The USD interest rate is 7% per annum and the AUD rate is 9% per annum. The current value of the AUD is...

Suppose that the term structure of interest rates is flat in the United States and in the United Kingdom. The USD interest rate is 5% per annum and the GBP interest rate is 6% per annum. The current...

A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $120,000, and it will save an estimated 300,000 kilowatt-hours (kWh)...

Which of the following accounting principles requires that warranty expense must be estimated and recognized in the same period when the related sales revenue is recognized? A. the matching principle...

Question 1 You are a mining engineering technologist working at a platinum mine in South Africa. The mine has been facing high accident rates due to manual drilling and loading operations. Management...

Mr. Masigasig created a trust in favor of Pedro. A large sum entrusted to BDO (Trustee), the income of which is accumulated Pedro. The following data were provided: Gross income of the trust...

The Peshawar Development Authority (PDA) is considering building its first tolled bypass around the city, that is assumed to have perpetual period of service. Two alternative routes are proposed....

6. Nuclear reactions allow us in principle to achieve the dream of the medieval alchemists, namely, to change other metals into gold. For example, bombarding a target of Hg with a proton beam can...

8. Show the major product (if any), as well as the reagent required to get from A to B, for the following reactions: 12 marks each] AICI, AICI, NO2 `NO2 HNO, H,SO,

? Ms Daphne Blake is the sole proprietor of 'Suasetz, a beach shade sale and hire business specialising in beach tents. She is also a good friend of Fred Jones and often refers customers who are...

------------------------------------- At the beginning of its first year of operations, Bonita Limited has 4,900, $3 preferred shares and 48,000 common shares. Using the format shown below, allocate...

Reword the following logical explanations for a negative message so that each has positive rather than negative words and tone. Consider what can be done rather than what cannot. Add necessary...

Global. Interview a person who is a native of another country to learn how negative messages would be conveyed in his or her homeland. (Objectives 3, 4, 5, and 6)

You own a 300-acre farm outside the city. Jack Ripsaw runs a local sawmill and has requested that you let him cut pulpwood from your farm and split the profit 50-50. Mr. Ripsaws reputation for...