Question
Please solve ASAP showing formulas/explanation. Will upvote once done but need help fast. Thank you in advance! 1- Firm IBM is in a newly-initiated one-year
Please solve ASAP showing formulas/explanation. Will upvote once done but need help fast. Thank you in advance!
1- Firm IBM is in a newly-initiated one-year swap where at the end of the year it pays 10%/year in sterling and receives 8%/year in dollar, plus the exchange or principle at the beginning and end of the year. The principal amounts in the two currencies are $15 million and 10 million pounds. The current exchange rate is $1.5 per pound. The one-year simple interest rates are 5% for US and 8% for UK.
(a) What is the value of the swap to IBM?
(b) Can you change the principal amounts to make this swap have an initial value zero?
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