A two-year semi-annual floating rate currency swap takes place between A (UK based) and B (Aus based). A wants to borrow in Australian dollars and B wants to borrow in British pounds. The original exchange rate is $1.50 for £1.00 and at the end of two years it is $1.30 for £1.00. Interest rates in Aus were 5% at initiation, while interest rates in the UK were 7% at initiation. The principal is $5 million and interest payments are determined in advance, and payable in arrears. At initiation of the swap, A will pay the following to amount to B: Group of answer choices £3.33 million $3.33 million $5.00 million £7.5 million zero, since no cash flows are exchanged at the start of the swap
A two-year semi-annual floating rate currency swap takes place between A (UK based) and B (Aus based). A wants to borrow in Australian dollars and B wants to borrow in British pounds. The original exchange rate is $1.50 for £1.00 and at the end of two years it is $1.30 for £1.00. Interest rates in Aus were 5% at initiation, while interest rates in the UK were 7% at initiation. The principal is $5 million and interest payments are determined in advance, and payable in arrears. At initiation of the swap, A will pay the following to amount to B: Group of answer choices £3.33 million $3.33 million $5.00 million £7.5 million zero, since no cash flows are exchanged at the start of the swap
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:A two-year semi-annual floating rate currency swap takes place between A (UK based) and B (Aus based). A wants to borrow in
Australian dollars and B wants to borrow in British pounds. The original exchange rate is $1.50 for £1.00 and at the end of two
years it is $1.30 for £1.00. Interest rates in Aus were 5% at initiation, while interest rates in the UK were 7% at initiation. The
principal is $5 million and interest payments are determined in advance, and payable in arrears. At initiation of the swap, A will pay
the following to amount to B:
Group of answer choices
£3.33 million
$3.33 million
$5.00 million
£7.5 million
zero, since no cash flows are exchanged at the start of the swap
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 1 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education