D&R A3 2 - 2 Question 2. Currency Swap A Canadian corporation (ACC) has just entered into a two-year currency swap contract with Big Dealer Bank (BDB). The swap contract requires ACC to make...

D&R A3

2 - 2

Question 2. Currency Swap

A Canadian corporation (ACC) has just entered into a two-year currency swap contract with Big Dealer Bank (BDB). The swap contract requires ACC to make semi-annual payments in Canadian dollars (C$) and receive semi-annual payments in U.S. dollars (US$). The notional amount in Canadian dollars is C$25 million. The accrual period for the swap is 180/360, assuming 360 days per year. The US$/C$ spot exchange rate is 0.77, with the Canadian dollar being the domestic currency for ACC. The term structures of C$ LIBOR and US$ LIBOR are as follows:

1. Calculate the fixed rates in Canadian and U.S. dollars.