Current annualized LIBOR and Euribor spots rates (and the present value factors) are shown in the following figure. Rate Present Value Factor 180-day LIBOR 3.0% 0.9852 360-day LIBOR 4.0% 0.9615 180-day Euribor 5.0% 0.9756 360-day Euribor 6.0% 0.9434 The current spot rate is $2.00 per euro, or €0.50 per dollar. After 120 days, new annualized LIBOR and Euribor spot rates are shown in the following figure. Rate Present Value Factor 60-day LIBOR 3.0% 0.9950 120-day LIBOR 3.5% 0.9885 240-day LIBOR 4.0% 0.9740 60-day Euribor 4.0% 0.9934 120-day Euribor 4.5% 0.9852 240-day Euribor 5.0% 0.9677 The spot rate after 120 days has changed to $2.1 per euro. Question: The value of the 1-year, $6,000,000 semiannual-pay currency swap to the pay euro fixed side is closest to: A. –$401,430. B. –$876,425. C. +$401,430. D. +$876,425.
Confused, you have dollars, euros, and punds?
is the counter party paying $ fixed or floating?
Pay Euro Fixed, Receive Dollar Float
yeah… the question isnt specific… when was the contract initiated?
A?
i get -345833.25 so A?
Answer. Ok…find the inital pay fixed euro rate: 1-.9434/ .9434 + .9756 = .029495 so, on $6,000,000 notional adjusted for initial exchange rate = €3,000,000 fixed value discounted back to day 120 = .029495 (.9934) + 1.02945 (.9677) =€3,076,364 adjust for the new exchange rate = $6,460,365 (this is value the fixed payer must pay) now to find the floating value that the fixed payer recieves: take initial 180 day US rate 1.015 and disc back at the 60 day rate = 1.009925 * 6000000 = $6,059,550 therefore 6,059,550 - 6460365 = -400,815
DAMN IT i keep using the 180 Euribor as the fixed rate even past day 180 mental note derive the fixed rate
I never get the exact number because of rounding, thank god theres a 400k difference in the choices.