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Please show steps Consider a currency swap with 3 years remaining. A financial institution receives...

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Finance

Please show steps

Consider a currency swap with 3 years remaining. A financial institution receives 3.0% per annum in sterling (GBP) and pays 5% per annum in dollars once a year. The LIBOR/swap interest rate with continuous compounding is flat in both countries. The British rate is 2.5% per annum and the US rate is 2.0% per annum. The principal amounts are 10 million pounds and $15 million dollars, and the current exchange rate is $1.5 = 1. By valuing the currency swap as fixed-rate bonds, what is:

  1. The value of the dollar bond in $?
  2. The value of the sterling bond in ?
  3. The value of the currency swap in $?

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