A US-Based Investor Enters into an Unhedged Cross-Currency Equity Swap $£$

question 21

Multiple Choice

A US-based investor enters into an unhedged cross-currency equity swap in which he pays returns on the S&P 500 index in dollars in exchange for receiving the returns on the FTSE 100 in pounds.At inception,the notional principal on the swap is $100 million,and the exchange rate is $1.60 = 1.Cash flows are exchanged every six months and the first six-month period has 182 days in it.At the end of the first six-month period,the raw returns on the S&P 500 are 8% and the raw returns on the FTSE 100 are 9%.The exchange rate at this point is $1.50 = 1.The investor's net cash flow on this first payment date is $£$

• A) \(-\)
• $1million.
• B) \(+\)
• 0)165 million.
• C) \(+\)
• 0)438 million.
• D) \(+\)
• 1 million.

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Definitions:

Blood

A vital fluid in the body that delivers necessary substances like nutrients and oxygen to the cells and transports metabolic waste products away.

Kidney

An organ in vertebrates that is essential for removing waste products from the blood and regulating blood pressure, electrolyte balance, and red blood cell production.

Acidity

A measure of the concentration of hydrogen ions in a solution, often determining the sourness or sharpness of taste.

Urine

A liquid by-product of metabolism in the bodies of many animals, including humans, expelled through the urethra.