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A currency swap has a remaining life of 15 months. It involves exchanging interest at 9.9% on 20,000 for interest at 6% on $30,000 once
A currency swap has a remaining life of 15 months. It involves exchanging interest at 9.9% on 20,000 for interest at 6% on $30,000 once a year. The term structure of risk-free interest rates in the United Kingdom is flat at 7.4% and the term structure of risk-free interest rates in the US is flat at 4% (both with continuous compounding). The current exchange rate (dollars per pound sterling) is 1.55. What is the value of the swap (in dollars) to the party paying sterling?
(Required precision: 0.01 +/- 10)
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