# Currency Swap Q.

An analyst gathered the following information about a four year \$3,000,000 plain vanilla currency swap between a U.S. company and a Swiss Company: Year 0 1 2 3 4 Exchange rate \$1=1.5Fr \$1=2.0 LIBOR 4.0% 3.0% 3.5% 4.5% 6.0% Four year fixed interest rate 5% The U.S. company agrees to pay fixed and the Swiss company agrees to pay floating. The amount of the payment made to the Swiss company by the U.S. company at the end of the swap is closest to: A. 225,000 frances B. 300,000 frances C. 4,725,000 frances D. 6,300,000 frances

(.05 - 0.045) * 3,000,000 = 15000\$ = * 2 = 30000 Fr. Probably the question should have read 30,000,000 \$? then answer should be B?

I got B too, but the answer key says it is C

The US company will return the borrowed principal, which was 4,500,000 Swiss francs. The US company will also make the fixed payment of 225,000 Swiss francs. The sum is 4,725,000 francs. The exchange rate at inception is the key, I don’t think subsequent exchange rates are relevant.

read Plain Vanilla – and went straight to a Plain Interest rate swap!!! and then contradicted myself by converting to Francs. Oh Man!! Woe is ME!

darn, i made same mistake. thank u, chebchev