3 Ganado's Cross-Currency Swap: Yen for Euros. Use Year 3 of the table of swap rates, and assume Ganado enters into a swap agreement to receive euros and pay Japanese yen, on a notional principal of 4,500,000. The spot exchange rate at the time of the swap is 105 / . a. Calculate all principal and interest payments, in both euros and Japanese yen, for the life of the swap agreement. b. Assume that one year into the swap agreement Ganado decides it wants to unwind the swap agreement and settle it in euros. Assuming that a 2-year fixed rate of interest on the Japanese yen is now 0.80%, a 2-year fixed rate of interest on the euro is now 3.60%, and the spot rate of exchange is now 115/ , what is the net present value of the swap agreement? Who pays whom what? See the inital values on the table: Exhibit 8.12: Interest Rate Swap Quotes (December 31, 2014) Euro Sterling Swiss franc U.S. dollar Japanese yen Years Bid Ask 1 0.11 0.17 2 0.11 0.17 3 0.13 0.19 4 0.15 0.21 5 0.19 0.25 6 0.24 0.30 7 0.30 0.36 0.36 0.42 0.42 0.48 0.49 0.55 0.61 0.69 0.82 0.90 1.09 1.17 1.22 1.30 1.29 1.37 8 9 10 12 15 20 25 30 LIBOR Bid 0.14 0.16 0.20 0.26 0.34 0.42 0.51 0.60 0.70 0.79 0.95 1.12 1.30 1.39 1.44 Ask 0.18 0.20 0.24 0.30 0.38 0.46 0.55 0.64 0.74 0.83 0.99 1.16 1.34 1.43 1.48 Bid 0.63 0.91 1.11 1.28 1.42 1.53 1.62 1.69 1.76 1.82 1.91 2.02 2.12 2.15 2.17 Ask 0.66 0.95 1.15 1.33 1.47 1.58 1.67 1.74 1.81 1.87 1.98 2.11 2.25 2.28 2.30 Bid -0.14 -0.18 -0.14 -0.07 0.02 0.11 0.21 0.30 0.39 0.47 0.59 0.75 0.95 1.06 1.11 Ask -0.08 -0.10 -0.06 0.01 0.10 0.19 0.29 0.38 0.47 0.55 0.69 0.85 1.05 1.16 1.21 Bid 0.42 0.86 1.26 1.55 1.75 1.90 2.02 2.11 2.19 2.26 2.37 2.48 2.59 2.64 2.67 Ask 0.45 0.89 1.29 1.58 1.78 1.93 2.05 2.10 2.22 2.29 2.40 2.51 2.62 2.67 2.70 Assumptioms Notional principal Original spot rate (\/) Values 4,500,000 105 Swap Rates Original: Euro Original: Yen 3-Year Bid 0.20% 0.13% 3-Year Ask 0.24% 0.19% 3 Ganado's Cross-Currency Swap: Yen for Euros. Use Year 3 of the table of swap rates, and assume Ganado enters into a swap agreement to receive euros and pay Japanese yen, on a notional principal of 4,500,000. The spot exchange rate at the time of the swap is 105 / . a. Calculate all principal and interest payments, in both euros and Japanese yen, for the life of the swap agreement. b. Assume that one year into the swap agreement Ganado decides it wants to unwind the swap agreement and settle it in euros. Assuming that a 2-year fixed rate of interest on the Japanese yen is now 0.80%, a 2-year fixed rate of interest on the euro is now 3.60%, and the spot rate of exchange is now 115/ , what is the net present value of the swap agreement? Who pays whom what? See the inital values on the table: Exhibit 8.12: Interest Rate Swap Quotes (December 31, 2014) Euro Sterling Swiss franc U.S. dollar Japanese yen Years Bid Ask 1 0.11 0.17 2 0.11 0.17 3 0.13 0.19 4 0.15 0.21 5 0.19 0.25 6 0.24 0.30 7 0.30 0.36 0.36 0.42 0.42 0.48 0.49 0.55 0.61 0.69 0.82 0.90 1.09 1.17 1.22 1.30 1.29 1.37 8 9 10 12 15 20 25 30 LIBOR Bid 0.14 0.16 0.20 0.26 0.34 0.42 0.51 0.60 0.70 0.79 0.95 1.12 1.30 1.39 1.44 Ask 0.18 0.20 0.24 0.30 0.38 0.46 0.55 0.64 0.74 0.83 0.99 1.16 1.34 1.43 1.48 Bid 0.63 0.91 1.11 1.28 1.42 1.53 1.62 1.69 1.76 1.82 1.91 2.02 2.12 2.15 2.17 Ask 0.66 0.95 1.15 1.33 1.47 1.58 1.67 1.74 1.81 1.87 1.98 2.11 2.25 2.28 2.30 Bid -0.14 -0.18 -0.14 -0.07 0.02 0.11 0.21 0.30 0.39 0.47 0.59 0.75 0.95 1.06 1.11 Ask -0.08 -0.10 -0.06 0.01 0.10 0.19 0.29 0.38 0.47 0.55 0.69 0.85 1.05 1.16 1.21 Bid 0.42 0.86 1.26 1.55 1.75 1.90 2.02 2.11 2.19 2.26 2.37 2.48 2.59 2.64 2.67 Ask 0.45 0.89 1.29 1.58 1.78 1.93 2.05 2.10 2.22 2.29 2.40 2.51 2.62 2.67 2.70 Assumptioms Notional principal Original spot rate (\/) Values 4,500,000 105 Swap Rates Original: Euro Original: Yen 3-Year Bid 0.20% 0.13% 3-Year Ask 0.24% 0.19%