A company based in the United Kingdom has a German subsidiary. Th e subsidiary generates 15,000,000 a year, received in equivalent semiannual installments of 7,500,000. The British company wishes to convert the euro cash flows to pounds twice a year. It plans to engage in a currency swap in order to lock in the exchange rate at which it can convert the euros to pounds. Th e current exchange rate is 1.5/. The fixed rate on a plain vanilla currency swap in pounds is 7.5% per year, and the fixed rate on a plain vanilla currency swap in euros is 6.5% per year.

1. Determine the notional principals in euros and pounds for a swap with semiannual payments that will help achieve the objective.

2. Determine the semiannual cash flows from this swap