Exam 23: Currency and Commodity Swaps

The USD-EUR spot exchange rate is $1.50/€. If the two-year interest rate (in continuously-compounded and annualized terms) is 3% for the EUR and 2% for the USD, what is the two-year forward exchange rate ($/€)?

You are an active currency trader in the dollar versus euro market. The current market quote ($/€) is 1.51-1.55. However, you believe the euro will appreciate versus the dollar. Which of the following quotes is the most likely one you will present to the market given your views?

The forward foreign exchange rate

The price of oil is $80 (spot), $85 (one-year forward), and $90 (two-year forward). Convenience yields and other costs and benefits of storing oil are zero. What is the price of a two-year annual-pay oil commodity swap?

Which of the following statements is most valid?

The continuously-compounded forward-interest-rate curve for euros lies above that for dollars up to five years in maturity and then crosses below the dollar forward curve. The current spot exchange rate is $1.50/€. What is the most valid statement of the following?

ABC, a US-based corporation enters into a currency basis swap with XYZ, a British company, in which the initial principal amounts are $200 million and £ 100 million. That is: -At inception, there is an initial principal exchange in which ABC pays XYZ $200 million and receives £ 100 million. -Subsequently, at each interest payment date ABC pays XYZ the GBP-Libor rate on £ 100 million, and receives the USD-Libor rate on $200 million. -Fnally, at maturity, a re-exchange of principals occurs in which ABC pays XYZ £ 100 million in exchange for $200 million. Suppose the spot exchange rate is $1.55 = £ 1 at the time of entering into the swap. Assuming ABC and XYZ both have AA credit ratings at this time and can access funds at Libor flat, the value of the swap at inception to ABC is

The USD-EUR spot exchange rate is $1.50/€. If the two-year interest rate (in continuously-compounded and annualized terms) is 3% for EUR and 2% for USD, what are the two-year forward points ($/€) expressed as usual in basis points?

A US company may borrow USD funds at Libor plus 1%. In the EUR market, it can raise fixed-rate financing at 3%. It may also access a currency swap that is quoted as: Fixed EUR 3.0-3.2% vs Floating USD Libor. The cheapest rate at which the company can borrow floating dollar funds is:

Consider an oil swap in which you pay the floating price of oil in exchange for a fixed amount $A$ . The price of a new oil swap (i.e., the breakeven value $A$ ) increases when

You are an active currency trader in the dollar-euro market. The current market quote ($/€) is 1.51-1.55. You do not want to trade much and would rather take the afternoon off because you have no idea where the market is going. Which of the following quotes is the most likely one you will present to the market given your objectives?

The price of a two-year oil commodity swap is $84. The spot price of oil is $80. If the two-year forward price of oil is $90, assuming zero storage costs and convenience yields, what is the best estimate of the one-year forward price of oil?

The price of a two-year oil commodity swap is $85. The spot price of oil is $80. If the one-year forward price of oil is $83, what is the best estimate of the two-year forward price of oil? Assume that convenience yields and other costs and benefits of storing oil are zero.

A commodity swap is (typically)

A currency swap is an agreement in which

A US-based corporation wants to raise fixed-rate dollar financing. It finds it can borrow fixed in USD at 6% per annum. It can also borrow fixed in JPY at 2% per annum. It can enter into a USD-JPY currency swap in which 2% fixed JPY interest rates are exchanged for USD Libor. Lastly, the company can enter into a USD plain vanilla fixed-vs-Libor interest rate swap with a fixed rate of 5.75%. Given this information, the company's best option is to

A US-based company needs to raise five-year financing for a new project. It will have to pay 5% interest for money raised in dollars, but only 2% interest for money raised in yen because interest rates are lower in Japan. Which of the following is not a risk if the company chooses to raise yen financing?

You are a CFO of a major corporation, and want to buy dollars in exchange for euros. The bank quotes you the following currency rate ($/€): 1.50-1.52. At what rate will you buy?

If Japanese yen floating rates are well below US dollar floating rates, then a fairly-priced basis swap that exchanges Japanese floating rates (plus a spread) for US floating rates must have

Consider a fixed-for-floating US dollar-Korean won currency swap in which an investor pays USD floating and receiving KRW fixed. From a cash-flow perspective, the swap is equivalent to a situation in which