Four years ago, a Swiss firm contracted a currency swap of US$100 million for 250 million Swiss francs (SFr), with a maturity of seven years. The swap fixed rates are 8% in dollars and 4% in francs, and swap payments are annual. The Swiss firm contracted to pay dollars and receive francs. The market conditions are now (exactly four years later) as follows:
Spot exchange rate: 2.00 Swiss francs/U.S. dollar.
Term structure of zero swap rates:
$\begin{array}{ccc}
\hline \text { Maturity Years } & \text { U.S. Dollar \% (ann.) } & \text { Swiss Franc \% (ann.) } \
\hline 1 & 9 & 5 \
2 & 9.5 & 5.75 \
3 & 10 & 6 \
4 & 10.25 & 6.25 \
5 & 10.75 & 6.5 \
6 & 11 & 7 \
7 & 11.5 & 7.5
\end{array}$ a. What should the swap payment (receipt) be at the end of the fourth year, that is, today?
b. Right after this payment, what is the swap market value for the Swiss firm?

Question

Four years ago, a Swiss firm contracted a currency swap of US$100 million for 250 million Swiss francs (SFr), with a maturity of seven years. The swap fixed rates are 8% in dollars and 4% in francs, and swap payments are annual. The Swiss firm contracted to pay dollars and receive francs. The market conditions are now (exactly four years later) as follows:
Spot exchange rate: 2.00 Swiss francs/U.S. dollar.
Term structure of zero swap rates:
 $\begin{array}{ccc}
\hline \text { Maturity Years } & \text { U.S. Dollar \% (ann.) } & \text { Swiss Franc \% (ann.) } \
\hline 1 & 9 & 5 \
2 & 9.5 & 5.75 \
3 & 10 & 6 \
4 & 10.25 & 6.25 \
5 & 10.75 & 6.5 \
6 & 11 & 7 \
7 & 11.5 & 7.5
\end{array}$  a. What should the swap payment (receipt) be at the end of the fourth year, that is, today?
b. Right after this payment, what is the swap market value for the Swiss firm?

Quizplus · Accepted Answer

The Answer of Four years ago, a Swiss firm contracted a currency swap of US$100 million for 250 million Swiss francs (SFr), with a maturity of seven years. The swap fixed rates are 8% in dollars and 4% in francs, and swap payments are annual. The Swiss firm contracted to pay dollars and receive francs. The market conditions are now (exactly four years later) as follows:
Spot exchange rate: 2.00 Swiss francs/U.S. dollar.
Term structure of zero swap rates:
 $\begin{array}{ccc}
\hline \text { Maturity Years } & \text { U.S. Dollar \% (ann.) } & \text { Swiss Franc \% (ann.) } \
\hline 1 & 9 & 5 \
2 & 9.5 & 5.75 \
3 & 10 & 6 \
4 & 10.25 & 6.25 \
5 & 10.75 & 6.5 \
6 & 11 & 7 \
7 & 11.5 & 7.5
\end{array}$  a. What should the swap payment (receipt) be at the end of the fourth year, that is, today?
b. Right after this payment, what is the swap market value for the Swiss firm?

Four Years Ago, a Swiss Firm Contracted a Currency Swap