Please answer all parts of the question, including a workings and explanations 2)...
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Please answer all parts of the question, including a workings and explanations
2) A currency swap has a remaining life of 14 months. It involves exchanging interest at 8% on 10 million for interest at 7% on $16 million once a year. The term structure of interest rates in both the United Kingdom and the United States is currently flat, and if the swap were negotiated today the interest rates exchanged would be 4% in dollars and 6% in sterling. All interest rates are quoted with annual compounding. The current exchange rate (dollars per pound sterling) is 1.4500. (a) What is the value of the swap to the party paying sterling? (b) What is the value of the swap to the party paying dollars
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