You entered into a currency swap that has 4.25 years left until termination. You receive 4.3%...

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 on €9,500,000 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? LOOKING FOR EXPLANATION AND IN SOME SORT OF EXCEL FORMAT PLEASE :)

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%

Expert Solution

Please see the table below. Please go through the second line to understand the mathematics.

Year	USD	EUR	Receive in $	Pay in EUR	Exchange rate ($ / Eur)	Pay in $	Net cash flows	PV factor	PV of net cash flows
t	A	B	C = 4.3% x 10,000,000	D = 3.8% x 9,500,000	E = 1.1 x e^{(A – B)t}	F = D x E	G = C - F	H = e^{-A x t}	G x H
0.25	3.00%	3.50%	430,000	361,000	1.098626	396,604	33,396	0.992528	33,147
1.25	3.50%	4.00%	430,000	361,000	1.093146	394,626	35,374	0.957193	33,860
2.25	4.00%	4.00%	430,000	361,000	1.100000	397,100	32,900	0.913931	30,068
3.25	4.25%	4.50%	430,000	361,000	1.091099	393,887	36,113	0.870990	31,454
4.25	4.25%	4.75%	430,000	361,000	1.076872	388,751	41,249	0.834748	34,433
Total									162,962

the value of your swap today = Sum total of PV of net cash flows = $ 162,962

jeff jeffy answered 5 months ago

You enetered into a currency swap that has 4.25 years left until termination. You receive 4.3%...

You enetered into a currency swap that has 4.25 years left until termination. You receive 4.3% on $10 million and pay 3.8% on 9.5 million euros each settlement date. Current exchange rate is $1.10/1 Euros. 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 .25 3% 3.5% 1.25 3.5% 4% 2.25 4% 4% 3.25 4.25% 4.5% 4.25 4.25% 4.75%

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