1. No, it should be a choice between 2 currecnies, either home currency or foreign currency. It is acutally a foreign currency forward option.
2. 0.5 is the exchange rate at the time the bond is issued. The difference between GBP notional pricipal and Actual notional priciapal is due to the exchange rate difference between the time of issuing and expiration.作者: himba 时间: 2004-9-13 19:31
0.52 is the updated exchange, while 0.5 is the exchange rate when SWAP is initiated, that means, the GBP that you could get with 0.5 now could worth 0.52, and to get the value of SWAP, you should multiple 0.5 to get the GBP, and divided it with updated rate of 0.52 to get the present value of SWAP. Beside, I made a mistake in my previous answer. The dual currency bond is to give the bond buyer an forward (not an option), so that at the end of it, the buyer could get principal back in foreign currency at the exchange rate decide at the beginning of issuing. It is a forward, not an option. Even if the exchange rate move against the buyer, they have the obligation to recieve the principal in foreign currency. Therefore, there is foreign exchange risk for dual currency bond buyer.
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