8. (16 points) At a time when the dollars per pound exchange rate was $1.40/, two companies entered a currency swap agreement with the following terms. Some of the figures below, as well as the company names, have been changed in order to preserve the privacy of the companies (which we will call Company A and Company B) and their information). The duration of the agreement is 10 years. Notional principal is 50 million (or the equivalent which at the time was $70 million). Company A will borrow 50 million from Company B at an interest rate of 4% per year. Company B will borrow $70 million from Company A at an interest rate of 5% per year. The first transfers will be at the end of the day the agreement was made. Interest payments are made annually and the full principal amount is due at the end of the 10-year period. (a) Upon entering the agreement (i.e. looking forward from that point in time), what are Company A's scheduled cash flows through the duration of the deal? (b) In hindsight, it turned out that the S/ exchange rate increased during the duration of the deal. Suppose that the pound appreciated against the dollar in a steady pace of 2% per year (in each year for the next decade). Calculate the net dollar value of Company A's payouts at the end of each year. (e) Suppose instead that the pound appreciated against the dollar only in the first five years of the deal (by 2% in each year), and that the latter half of the decade was characterized by steady strengthening of the dollar, appreciating by 2% against the pound in each of the remaining five years. Calculate the net dollar value of Company A's payouts at the end of each year. (d) Under the assumptions of part (c), suppose Company B filed for bankruptcy approximately 8.5 years from the inception of the swap agreement. With no assets or cash, Company B was not able to pay any creditors and defaulted on all its liabilities including the remaining two payments of the swap. What is the financial damage to Company A as a result of the bankruptcy of Company B? In your view, what are the probable implications for Company A and its operations