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Determine the initial exchange of cash

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A U.S. company enters a currency swap in which it pays a fixed rate in a foreign currency, the Canadian Dollar, and the Canadian counterparty pays a fixed rate in US dollars. The notional principals are USD 7,500,000 and CAD 10,000,000. The fixed rates are 5.6% (LIBOR, annualized) in U.S. dollars and 4% (LIBOR, annualized) in Canadian dollars. Both sets of payments are made on the basis of 30 days per month and 360 days per year, and the payments are made semi-annually.

(a) Determine the initial exchange of cash that occurs at the start of the swap.

(b) Determine the semi-annual payments.

(c) Determine the nal exchange of cash that occurs at the end of the swap.

(d) Give an example of a situation in which this swap might be appropriate

Reference no: EM132465517

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