Answer and computE.

a) Highlight three similarities between swap contracts and forward contracts. b) A financial institution has entered into a 10-year currency swap with company Y. Under the terms of the swap, the financial institution receives interest at a rate of 3% per annum in Swiss Francs and pays interest at a rate of 8% in U.S dollars. Interest payments are exchanged once a year, The principal amounts are 7 million US dollars ($) and 10 million Swiss Francs (SFr). Company Y happens to declare bankruptcy at the end of year 6, when the exchange rate is $0.80 per Swiss Franc. At the end of year 6, the interest rate is 3% per annum in Swiss Francs and 8% per annum in U.S dollars for all maturities. All interest rates are quoted with annual compounding. Required: The cost of currency swap to the financial institution. c) A currency swap has a remaining life of 15 months. It involves exchanging interest at a rate of 10% on 20 million Sterling pounds for interest rate of 6% on 30 million USD once a year. The term structure of interest rates in both the United Kingdom and the United States is currently flat, and if the swap were negotiated today the interest rates exchanged would be 4% in US dollars and 7% in Sterling Pounds. All interest rates are quoted with annual compounding. The current exchange rate (US dollar per Sterling Pound) is 1.8500. Required: Determine the value of the swap to the party paying US dollars. d) A party has entered a receive-float 6 x 9 FRA (forward rate agreement) at a rate of 0.86% with notional amount of 10,000,000 Canadian dollars (C$) at time 0. The six month spot C$ LIBOR was 0.628% and the nine month C$ LIBOR was 0.712%. The 6 x 9 FRA rate is quoted in the market at 0.86%. After 90 days have passed, the three month C$ LIBOR is 1.25% and the six month C$ LIBOR is 1.35%. Required: Using the appropriate discount rate, calculate the value of the original receive-floating 6 x 9 FRA. e) A put option with an exercise price of Sh.45.00 is currently trading at Sh.3.50. The underlying share is trading at a market price per share (MPS) of Sh.45.00. The MPS is expected to increase to Sh.50.00. Required: In relation to the above statement, explain the effect of the following: i. Put option's Delta. ii. Put option's Gamma