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90 days ago, the mutual fund entered into a one-year currency swap by agreeing

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.

Hint
ManagementThe value of a swap implies the market value at any point in time. At the start, the value of an interest rate swap is 0. The price of the swap denotes the original terms of the swap at the beginning of the swap's life....

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