A company based in the United Kingdom has an Italian subsidiary. The subsidiary generates
25,000,000 a year, received in equivalent semiannual installments of 12,500,000. The British
company wishes to convert the euro cash flows to pounds twice a year. It plans to engage in a
currency swap in order to lock in the exchange rate at which it can convert the euros to pounds.
The current exchange rate is 3.1/. The fixed rate on a plain vanilla currency swap in pounds is
9.2 percent per year, and the fixed rate on a plain vanilla currency swap in euros is 8.2 percent
per year. a. Determine the notional principals in euros and pounds for a swap with semiannual
payments that will help achieve the objective. b. Determine the semiannual cash flows from this
swap..
A company based in the United Kingdom has an Italian subsidiary. The .pdf
1. A company based in the United Kingdom has an Italian subsidiary. The subsidiary generates
25,000,000 a year, received in equivalent semiannual installments of 12,500,000. The British
company wishes to convert the euro cash flows to pounds twice a year. It plans to engage in a
currency swap in order to lock in the exchange rate at which it can convert the euros to pounds.
The current exchange rate is 3.1/. The fixed rate on a plain vanilla currency swap in pounds is
9.2 percent per year, and the fixed rate on a plain vanilla currency swap in euros is 8.2 percent
per year. a. Determine the notional principals in euros and pounds for a swap with semiannual
payments that will help achieve the objective. b. Determine the semiannual cash flows from this
swap.
