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A currency swap has a remaining life of 15 months. It involves exchanging interest at 10.4% on 20,000 for interest at 6.1% on $30,000 once
A currency swap has a remaining life of 15 months. It involves exchanging interest at 10.4% on 20,000 for interest at 6.1% on $30,000 once a year. The term structure of risk-free interest rates in the United Kingdom is flat at 6.9% and the term structure of risk-free interest rates in the US is flat at 4.3% (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?
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