1. Assume Trident enters into a swap agreement to receive Euros (fixed rate 3.24%) and pay Japanese yen (fixed at 0.59%), on a notional principal of 5,000,000. The spot exchange rate at the time of the swap is 104/. The principal and interest payments are provided below. Assume that one year into the swap agreement (i.e., immediately after the payment due Year 1), Trident decides to unwind the swap agreement and settle it in Euros. Assuming at end of Year 1, a two-year fixed rate of interest on the yen is 0.80%, and a two-year fixed rate of interest on the Euro is 3.60%, and the spot rate of exchange is 114/, what is the net present value of the swap agreement? Who pays whom what?

Swap Payments Year 0 Year 1 Year 2 Year 3

Trident will receive cash flows: 162,000 162,000 5,162,000

Trident will pay cash flows: 3,068,000 3,068,000 523,068,000