a company based in the united kingodm has an Italian subsidiary. The subsidiary generates 25,000,000 a year, received in equivalent semiannual installments of 12,500,000. 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 euros to pounds. The current exchange rate is 2.3/. The fixed rate on a plain vanilla currency swap in pounds is 8.4 percent per year, and the fixed rate on a plain vanilla currency swap in euros is 7.4 percent per year.

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

Determine the semiannual cash flows from the swap.