2. Currency swap Using the table of swap rates, assume you enter into a four year swap agreement to receivedollars and pay euro on a notional principal of $1,000,000. The spot exchange rate at the timeof the swap is $1.20/ a. Calculate all principal and interest payments, in both USD and euro, for the life of the

Swap agreement. b. Assume that two years into the swap agreement you decide to unwind the swap agreement and settle it in USD. Assuming that a two-year fixed rate of interest on theUSD is now 4.60 %, and a two-year fixed rate of interest on the euro is now 2.80%, andthe spot rate of exchange is now $1.10/, what is the net present value of the agreement?Who pays whom what?

Euro-E Swiss franc U.S. dollar Japanese yen Years Bid Ask Bid Ask Bid Ask Bid Ask 2.99 3.02 1.43 1.47 5.24 5.26 0.23 0.26 0.36 3.08 3.12 1.68 1.76 5.43 5.46 0.39 3.24 3.28 1.93 2.01 5.56 5.59 0.56 0.59 3.44 3.48 2.15 2.23 5.65 5.68 0.82 0.85 1.09 3.63 3.67 2.35 2.43 5.76 1.12 5.73 3.83 3.87 2.54 2.62 5.80 5.83 1.33 1.36 4.01 4.05 2.81 2.73 5.86 5.89 1.55 1.58 1.75 2.91 4.18 4.22 2.99 5.92 5.95 1.78 1.90 1.93 4.32 4.36 3.08 3.16 5.96 5.99 3.22 6.01 2.04 10 4.42 3.30 6.04. 2.07 4.46 6.10 12 4.58 4.62 3.45 3.55 6.13 2.28 2.32 4.78 3.81 6.20 15 4.82 3.71 6.23 2.51 2.56 20 5.00 5.04 3.96 4.06 6.29 6.32 2.71 2.76 25 5.13 5.17 4.07 4.17 6.29 6.32 2.77 2.82 5.19 6.31 30 5.23 4.16 4.26 6.28 2.82 2.88 LIBOR 3.0313 3.0938 1.3125 4.9375 5.0625 1.4375 0.1250 0.2188 Typical presentation by the Financial Times. Bid and ask spreads as of close of London business. US$ is quoted against 3-month LIBOR: Japanese yen against 6-month LIBOR: Euro and Swiss franc against 6-month LIBOR