Question

Suppose that you have entered a 5-year swap to receive Japanese Yen and Pay 1-year Libor with notional principal of USD 10,000,000. At the time the swap agreement was completed the swap quote was 0.50% bid and 0.60% offered against the 1-year dollar Libor, and the spot rate was JPY100/$ (assume payments are annual). Assume that 1 year has passed. The spot exchange rate is JPY 98/USD. The dealer is quoting the following interest rates on 4-year swaps: 1.50% bid and 1.60% offered against the 1-year dollar Libor. You want to close out the swap. What is your net dollar cashflow?

Answer #1

Ganado Corporation entered into a 3-year cross-currency
interest rate swap to receive U.S. dollars and pay Swiss francs.
Ganado, however, decided to unwind the swap after one year—thereby
having two years left on the settlement costs of unwinding the swap
after one year. Repeat the calculations for unwinding, but assume
that the following rates now apply:
Assumptions
Values
Swap Rates
3-Year Bid
3-Year Ask
Notional principal
$11,000,000
Original: US dollar
5.56%
5.59%
Original spot rate (SFr/$)
1.5
Original: Swiss franc...

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