Valuation of Currency Swaps

A bank entered into a two-year currency swap with semi-annual payments 200 days ago by agreeing to swap $1,000,000 for 800,000. The bank agreed to pay an annual fixed rate of 5% (with semi-annual compounding) on the 800,000 and receive a floating rate tied to LIBOR on the $1,000,000. Current LIBOR and Euribor rates and present value factors are shown in the following table (LIBOR and Euribor quoted in the table are continuously compounding rates).

	Rates (p.a)	Present value factors
160-day LIBOR	4%	0.9824
180-day LIBOR	4.4%	0.9782
340-day LIBOR	4.8%	0.9557
520-day LIBOR	5.2%	0.9276
160-day Euribor	5.2%	0.9772
180-day Euribor	5.6%	0.9724
340-day Euribor	6.1%	0.9440
520-day Euribor	6.3%	0.9130

The current spot exchange rate is 1USD = 0.91. 180-day LIBOR at the last payment date was 4.2% p.a. (with semi-annual compounding). Assume that the implied forward rates and the theoretical forward exchange rates can be realized. Also assume there are 360 days in a year.

Required:

Whats the value of the swap to the bank today? Please calculate the value of the swap to the bank in terms of bonds and in terms of forward contracts.

Hint: You may use the following tables to guide your calculations.

Valuation in terms of Bonds

Time	Cash Flow ()	PV Factor	PV ()	Cash Flows ($)	PV Factor	PV ($)
Total

Valuation in terms of Forwards

Time	Cash Flow ()	Cash Flow ($)	Forward Exch rate	Cash Flow in $	Net Cash Flow ($)	PV Factor	PV ($)
Total