1. Plain-vanilla interest rate swap

A British company BB Corp. enters into a 2-year interest rate swap with Sea Bank. The notional principle of the swap is 100 million. Payments will be made semiannually on the basis of 180/360 (180 days in the settlement period and 360 days per year). BB will receive a fixed rate of 4% and pay floating rate Euribor plus 1%. The 180-day Euribor rates are as below:

Current: 2.7% In 6 months: 3% In 1 year: 3.5% In 1.5 years: 3.9%

1. Determine the initial exchange of cash that occurs at the start of the swap.

2. Determine the semiannual payments (In 6 months, in 1 year)

3. Determine the final exchange of cash that occurs at the end of the swap.

2. Currency swap

Banana Corp. enters into a currency swap with Simothy Bank in which it pays a fixed rate in U.S dollars, and Simothy Bank pays a fixed rate in euros. The notional principals are $110 million and 100 million (equivalent in value at the current exchange rate of $1.1 per euro.) The fixed rates are 4% in dollars and 4.5% in euros. The swap specifies that the two parties exchange the notional principal at the start and at the end of the swap. Payments are made quarterly on the basis of 90/360.

1. Determine the initial exchange of cash that occurs at the start of the swap.

2. Determine the quarterly payments.

3. Determine the final exchange of cash that occurs at the end of the swap.