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Consider a currency swap in which 3% is received in pound sterling on a principal of GBP 40 million and 5% is paid in dollars
Consider a currency swap in which 3% is received in pound sterling on a principal of GBP 40 million and 5% is paid in dollars on a principal of USD 50 million (GBP is a symbol for pound sterling) . Payments are made annually. The swap will last for 3 more years. The current exchange rate is USD 1.2 per GBP. The risk-free interest rates for GBP is 2.5% per annum continuously compounded. The risk-free interest rates for USD is 1.5% per annum continuously compounded. What is the value of the swap?
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