EXERCISE 1 Two companies can borrow in the FX markets on the following terms: Company A Company B Fixed USD Treasuries+60 Treasuries+180 Floating GBP LIBOR+15 LIBOR+160 The spot rate is GBP/USD 1,50. The two companies engage in a two year swap on a notional principal of 100 mln GBP using the services of a swap bank. Company A takes 60% of the arbitrage gain, Company B 24% and the swap bank - 16%. Show how the swap works and calculate the payments made by the two companies if the yields on Treasuries is 7% and LIBOR is 5% in year 1 and 5,5% in year 2 EXERCISE 1 Two companies can borrow in the FX markets on the following terms: Company A Company B Fixed USD Treasuries+60 Treasuries+180 Floating GBP LIBOR+15 LIBOR+160 The spot rate is GBP/USD 1,50. The two companies engage in a two year swap on a notional principal of 100 mln GBP using the services of a swap bank. Company A takes 60% of the arbitrage gain, Company B 24% and the swap bank - 16%. Show how the swap works and calculate the payments made by the two companies if the yields on Treasuries is 7% and LIBOR is 5% in year 1 and 5,5% in year 2