A swap line is a loan of a source-country currency by the source-country central bank to...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A swap line is a loan of a source-country currency by the source-country central bank to a recipient-country central bank, keeping the recipient country currency as collateral for the duration of the loan. To support Ukraine during Russia's invasion, the Narodowy Bank Polski (NBP), Poland's central bank, made a 1 billion USD swap line available in March 2022 to the National Bank of Ukraine (NBU), Ukraine's central bank, on the U.S. dollar-hryvnia (UAH) currency pair. UAH is Ukraine's national currency. Suppose the NBU engages in a contractual agreement with Poland to obtain 1 billion USD (using UAH as collateral) and swap annual interest payments for 3 years. After two years, NBU will return 1 billion USD and receive back its pledged collateral. Suppose the spot USD/UAH exchange rate is 29.45 and USD and UAH interest rates are 0.25% and 13%, respectively. a. (2 Point) In this currency swap agreement, does NBU have USD asset or USD liability? Explain. b. (6 Points) What is the current value of the USD swap leg in terms of UAH? c. (6 Points) What is the NPV (net present value) of the swap today from perspective of NBU? d. (6 Points) After 1 years (2 year left), assume that the USD interest rate has increased to 2% (contractionary monetary policy by the Federal Reserve). The exchange rate after one year is 52.23 USD/UAH. What is the value of the swap from the perspective of NBP? A swap line is a loan of a source-country currency by the source-country central bank to a recipient-country central bank, keeping the recipient country currency as collateral for the duration of the loan. To support Ukraine during Russia's invasion, the Narodowy Bank Polski (NBP), Poland's central bank, made a 1 billion USD swap line available in March 2022 to the National Bank of Ukraine (NBU), Ukraine's central bank, on the U.S. dollar-hryvnia (UAH) currency pair. UAH is Ukraine's national currency. Suppose the NBU engages in a contractual agreement with Poland to obtain 1 billion USD (using UAH as collateral) and swap annual interest payments for 3 years. After two years, NBU will return 1 billion USD and receive back its pledged collateral. Suppose the spot USD/UAH exchange rate is 29.45 and USD and UAH interest rates are 0.25% and 13%, respectively. a. (2 Point) In this currency swap agreement, does NBU have USD asset or USD liability? Explain. b. (6 Points) What is the current value of the USD swap leg in terms of UAH? c. (6 Points) What is the NPV (net present value) of the swap today from perspective of NBU? d. (6 Points) After 1 years (2 year left), assume that the USD interest rate has increased to 2% (contractionary monetary policy by the Federal Reserve). The exchange rate after one year is 52.23 USD/UAH. What is the value of the swap from the perspective of NBP?
Expert Answer:
Answer rating: 100% (QA)
a In this currency swap agreement the NBU has a USD liability This is because the NBU is borrowing USD from the NBP and will have to repay the borrowe... View the full answer
Related Book For
Managing in a Global Economy Demystifying International Macroeconomics
ISBN: 978-1285055428
2nd edition
Authors: John E. Marthinsen
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Explain and justify what stage current bubble is in ?Analyze the financial markets and contribution of participants that create the bubble? Justify and explain the factors that will cause this bubble...
-
A charge of 6.00mC is placed at each corner of a square 0.100m on a side. Determine the magnitude and direction of the force on each charge.
-
Describe the like-kind property requirements for real property for purposes of qualifying for a like-kind exchange. Explain whether land held for investment by a corporation will qualify as like-kind...
-
Kim Bassinger Inc. reported sales of $2 million for 2002. Accounts receivable decreased $200,000 and accounts payable increased $325,000. Compute cash receipts from customers, assuming that the...
-
The following table contains current asset and current liability balances for Microsoft Corporation (MSFT): a. Assume that you are the lead banker for the syndicate of banks that manages Microsoft...
-
the a=0.05 significance level, test the claim that the responses occur with the same frequency. Ho: the test question responses occur with the same frequency Ha: at least one question response occurs...
-
A month has elapsed since Precision Computer Centres year-end. Tony Freedman will use four specialized journals for recording business transactions in the month of Septembertwo in this chapter, and...
-
What should the relationship between a company s website and a company s social media platforms be ? Select answer from the options below Websites and social media platforms should have different...
-
What is the angle of rotational symmetry in methane? How many axis of 3-fold symmetry are there in methane? If you bisect the Hi-C-H2 angle and rotate to find a plane of symmetry, what is the angle...
-
Brand/Background :Roundnet is a net sport-inspired primarily by concepts from volleyball. It was originally created in 1989 by Jeff Knurek although the equipment he created for the game became...
-
Belton, Inc. had the following transactions in 2024, its first year of operations: Issued 33,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $19.00 per share....
-
1. What it means to decompose the income gap in an economic sense. Use examples about decomposing the income gap between same-sex couples and different-sex couples. Specify the factors the income gap...
-
Pharoah Corp.'s sales slumped badly in 2022. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 595,500 units of...
-
Equation that extends from Quadrant II to quadrant IV, has 2 turning points, and a y-intercept of 4 2 answers
-
Q:1 Take any product or service offered in Pakistan and apply all determinents of customer Perceived value ?
-
Companies often create long-term planning documents that focus on improving their core competencies. If the government wanted to create a similar document for the nation, what problems would it have...
-
Why are business cycles difficult to predict?
-
What causes some nations to grow faster than others? Are there identifiable engines or commonalities? Are there identifiable anchors (i.e., hindrances) to growth?
-
What is the purpose of the Eighth Directive of the European Union? What do you think some of these challenges hindering its total implementation might be?
-
The U.S. system leans toward a heavy education requirement mixed with practice, and the British system leans more toward a heavy experience requirement bordering on apprenticeship. Which system is...
-
If you were a certified accountant in your home country and wanted to practice as an auditor in another country, you would most likely not be allowed to practice. Why do these barriers to entry...
Study smarter with the SolutionInn App