A bank entered into a one-year currency swap with quarterly payments 200 days ago byagreeing to swap $1,000,000 for 800,000. The bank agreed to pay an annual fixed rate of5% (with quarterly compounding) on the 800,000 and receive a floating rate tied to LIBOR on the $1,000,000. Current LIBOR and Euribor rates and present value factors areshown in the following table (LIBOR and Euribor are continuously compounding rates).

The current spot exchange rate is 1USD = 0.75. 90-day LIBOR at the last payment date was4.2% p.a. (with quaterly compounding). Assume that the implied forward rates and thetheoretical forward exchange rates can be realized. Also assume there are 360 days in a year.

Required:

Rate Present Value Factor 70-day LIBOR 4% 0.9923

90-day LIBOR 4.4% 0.9891

160-day LIBOR 4.8% 0.9789

180-day LIBOR 5.2% 0.9743

70-day Euribor 5.2% 0.9900

90-day Euribor 5.6% 0.9861

160-day Euribor 6.1% 0.9733

180-day Euribor 6.3% 0.9690

Whats the value of the swap to the bank today? Please calculate the value of the swap to the bank in terms of bonds and in terms of forward contracts.Note: these two methods may yield different results if you use the 4d.p. discount factor givenor if you round any number in the calculation. The discrepancy due to rounding errors can beignored and will be accepted.

You may use the following tables to guide your calculations.

(1)Valuation in terms of Bonds

Time	Cash Flow()	PV factor	PV()	Cash Flow($)	PV factor	PV($)
1
2
2
Total

(2)Valuation in terms of Forwards

Time	Cash Flow()	Cash Flow($	forward exchange rate	Cash Flow in $	Net cash flow$	PV factor	PV$
1
2
2
total