Intro A bank agreed to a currency swap with a company 8 years ago. Under the terms of the swap, the bank receives 9% per year in dollars on a principal of $30 million, and pays 2% per year in pound sterling on a principal of 20 million pounds. Interest payments are annual, and principals are exchanged at the maturity date of the swap. Today, when the swap has a remaining life of 2 years, the company defaults on the swap and will not make the promised payment, nor will it make any other payments in the future. The current exchange rate is $1.32 per pound. British interest rates are 3% and U.S. interest rates are 10% for all maturities. Part 1 Attempt 1/4 for 10 pts. What would have been the net cash flow to the bank today (in $ million) i.e. the time 0 exchange present value? Part 2 Attempt 1/4 for 10pts. What is the loss to the bank (in absolute terms, $ million)? Intro A bank agreed to a currency swap with a company 8 years ago. Under the terms of the swap, the bank receives 9% per year in dollars on a principal of $30 million, and pays 2% per year in pound sterling on a principal of 20 million pounds. Interest payments are annual, and principals are exchanged at the maturity date of the swap. Today, when the swap has a remaining life of 2 years, the company defaults on the swap and will not make the promised payment, nor will it make any other payments in the future. The current exchange rate is $1.32 per pound. British interest rates are 3% and U.S. interest rates are 10% for all maturities. Part 1 Attempt 1/4 for 10 pts. What would have been the net cash flow to the bank today (in $ million) i.e. the time 0 exchange present value? Part 2 Attempt 1/4 for 10pts. What is the loss to the bank (in absolute terms, $ million)