Individual Homework-7

Individual Homework-7 - Currency swap with bid-ask spread...

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Currency swap with bid-ask spread Particularly, the swap bank will tailor the terms of currency swap to firms’ needs. They also will quote annual fixed-rate bid-ask spread versus LIBOR flat, that is, no credit premium. Assume that the swap bank is quoting eight-year U.S. dollar (euro) currency swaps at 8.00-8.15 (6.00-6.10) percent against dollar LIBOR flat and the swap bank can deal with Centralia Corporation and the Spanish MNC separately. This means, the swap bank will pay annual fixed-rate payment of bid interest rates against receiving annual dollar LIBOR, or it will receive annual fixed-rate dollar payments at ask interest rate against paying annual dollar LIBOR. This set-up makes more realistic practice of a basic currency swap, it is necessary to add the bid-ask spread that the swap bank charges for serving the currency swap agreement. As currency swap rules, one counterparty exchange the debt service obligations of a bond denominated in one currency for the debt service obligations of the other counterparty denominated in another currency. Then the principal sums which are raised in the national capital market by Centralia Corporation ($2,900,000) and the Spanish MNC
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This note was uploaded on 09/27/2010 for the course BUSINESS MTG509 taught by Professor Dr.jonhhanon during the Spring '10 term at Northcentral.

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Individual Homework-7 - Currency swap with bid-ask spread...

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