Grealish Pharma (UK based) has entered into a cross-currency swap to minimise its borrowing costs related to its expansion plans in the US. It was a five-year swap with 100 million being swapped at initiation at the then exchange rate of US$1.40/. The interest rates at inceptions were 4.25% on the UK and 3.50% in the US. After two years the interest rates of the two currency have changed to 5.00% in the UK and 4.00% in the US, while the exchange rate has changed to US$1.50/1.

Required

(a) What will be the fair value of an off-market swap with a four-year remaining maturity per 10,000 nominal that has an annual fixed rate of 6% per cent to the fixed-rate payer?

(B) Discuss the forward contracts by explaining their advantages, disadvantages and basics of valuation. Define FRA, ERA and FXA and explain the main purpose of these products and how they might work for a company like Grealish Pharma.