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5. (Ch. 18) Value of a Swap. The annualized Indian rupee (INR) interest rate is 10% for six months, while the annualized USD interest rate
5. (Ch. 18) Value of a Swap. The annualized Indian rupee (INR) interest rate is 10% for six months, while the annualized USD interest rate is 3% for six months. Khaledi Co., a U.S. firm, entered into a currency swap with a swap dealer, where Khaledi Co. receives 2.0% semi-annually in USD and pays 7.0% semi-annually in INR. [Note: the interest rates to be represented are all annualized.] The principals in the two currencies are USD 4 million and INR 200 million. Notional principals are exchanged at the end of the swap. The swap will last for another two years. The exchange rate in INRUSD is .02. For simplicity, assume the term structure in India and in the U.S. is flat. A. Draw a diagram showing the semi-annual swap cash flows (in INR and in USD). (5 points) B. Value this currency swap for Khaledi Co. (10 points)
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