SCENARIO 5: VALUE A CURRENCY SWAP

90 days ago, the mutual fund entered into a one-year currency swap by agreeing to swap US dollars for euros at the fixed rates. The annualised fixed rate in dollars and euros are 7.84% and 6.48%, respectively. The exchange rate at the start of the swap was $0.75. The new exchange rate today is $0.70. Assume that the notional dollar amount is $20,000,000. The payments are made semi-annually based on the assumption of 30 days per month and 360 days in a year. The adjustment Current LIBOR and Euribor rates are shown in the Exhibit 4.

Task 5: Your task is to determine the market value of the swap today from the mutual fund’s perspective, who pays dollars and receives euros.