A swap dealer quotes a euro midrate of 3.8175 percent in bond equivalent yield with quarterly compounding

Question:

A swap quotes a euro midrate of 3.8175 percent in bond equivalent yield with quarterly for a 2-year yen-per-euro currency coupon swap. The corresponding 2-year yen rate is 2.9291 percent in quarterly compounded bond equivalent yield. The charges an annual fee of ±8bp (±2bp per quarter) around the euro swap mid-rate against yen 3-month LIBOR flat. The swap pricing schedule looks like this:

A swap dealer quotes a euro midrate of 3.8175 percent

The spot exchange rate is ¥168.264/‚¬.
Useful present value interest factors for annuities (PVIFA) include:
PVIFA(8 periods at the 3.8175%/4 = 0.954375% euro rate) = 7.66707456
PVIFA(8 periods at the 2.9291%/4 = 0.732275% yen rate) = 7.74268838
a.NTT has ¥1,682,640,000 of 2-year yen debt at a floating rate of 3-month (¥) LIBOR + 88 bps (MMY), or LIBOR + 22 bps each three months. NTT wants to swap this into fixed rate euros to fund its European operations. What is the all-in cost of NTT's yen-for-euro currency coupon swap? Verify this by calculating the internal rate of return on NTT's fully covered ¥/‚¬ swap.
b.Euro Digital, N.V. (ED) has ‚¬10 million of 2-year fixed rate debt at 4.7508 percent in bond equivalent yield (BEY). ED wants floating rate yen debt to fund its expansion into Japan. Identify the all-in cost of ED's ¥/‚¬ currency coupon swap. Verify this cost by calculating the internal rate of return on ED's fully covered cash flows.
c.What does the swap bank gain from these transactions?

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