Consider the following fixed-floating-rate currency swap of assets: 5 percent (annual coupon) fixed-rate US$1 million bond and

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Consider the following fixed-floating-rate currency swap of assets: 5 percent

(annual coupon) fixed-rate US$1 million bond and floating-rate SFr1.5 million bond set at LIBOR annually. Currently LIBOR is 4 percent. The face value of the swap is SFr1.5 million. The spot exchange rate is SFr1.5/$.

a. What are the realized cash flows on the swap at the spot exchange rate?

b. If the one-year forward rate is SFr1.538 per US$, what are the realized net cash flows on the swap? Assume LIBOR is unchanged.

c. If LIBOR increases to 6 percent, what are the realized net cash flows on the swap? Evaluate at the forward rate.

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