Question

You entered into a currency swap that has 4.25 years left until termination. You receive 4.3% on $10,000,000 (annual rate with annual compounding) and pay 3.8% on €9,600,000 each settlement date. Current exchange rate is $1.10/€1. The interest rates are listed below for the USD and EUR all quoted per annum with continuous compounding. What is the value of your swap today?

Year USD EUR

0.25 3.00% 3.50%

1.25 3.50% 4.00%

2.25 4.00% 4.00%

3.25 4.25% 4.50%

4.25 4.25% 4.75%

Answer 1

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