A Canadian corporation with a French subsidiary generates cash flows of €10 million a year. It wants to use a currency swap to lock in the rate at which it converts to Canadian dollars. The current exchange rate is C$0.825/€. The fixed rate on a currency swap in euros is 4%, and the fixed rate on a currency swap in Canadian dollars is 5%.

A. Determine the notional principals in euros and Canadian dollars for a swap with annual payments that will achieve the corporation’s objective.

B. Determine the overall periodic cash flow from the subsidiary operations and the swap.