1. Company A wants to borrow in Euros while company B wants to borrow in Pounds.

	Company A	Company B
GBP	5 %	8 %
EUR	4 %	6 %

Set a 4 year currency swap for these companies if the gains are to be equally divided between the companies and the swap bank does not charge commission. Calculate the cash flows for a 1,000 [GBP] notional amount if the spot rate is 1.3 [EUR/GBP] and the cash to be exchanged to balance the swap if the exchange rate moves to 1.1 [EUR/GBP]. What happens to the swap bank if the EUR appreciates with respect to the GBP?