International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

تمرين 3

Assume that 1 year has passed since you entered into the transaction described in problem 1. Assume that the new spot exchange rate is CHF1.45/$ and that UBS is now quoting the following interest rates on 4-year swaps: U.S. Dollars: 7.50% bid and 7.60% offered against the 6-month dollar LIBOR Swiss Francs: 6.75% bid and 6.85% offered against the 6-month dollar LIBOR If you close out the swap in problem 4, what net dollar cash flow will you experience Explain why this is the correct amount. You can assume that the term structures of interest rates in both currencies are flat.
Problem 1
The swap desk at UBS is quoting the following rates on 5-year swaps versus 6-month dollar LIBOR:
U.S. Dollars: 8.75% bid and 8.85% offered
Swiss Francs: 5.25% bid and 5.35% offered
You would like to swap out of Swiss franc debt with a principal of CHF25,000,000 and into fixed-rate dollar debt. At what rates will UBS handle the transaction If the current exchange rate is CHF1.3 / $, what would the cash flows be