Consider a US firm that needs 800 million to expand its production facilities in Europe. The debt would be 3-year, fixed rate bonds with annual coupon payments. The firm would like to pay interest in euros so that changes in their dollar-denominated interest expense would provide a hedge against currency risk. Suppose the spot exchange rate is $0.850/ and the one-year forward rate is $0.870/. The firm can borrow in dollars at 6.00% by issuing bonds in the US capital markets or they can borrow in euro at 4.50%. It can also arrange a 3-year annual payment currency swap at a fixed dollar rate of 5.75% and a fixed euro rate of 4.20%. a. If the firm could get equally good terms borrowing in euros or dollars, what rate would they expect to pay on euro-denominated bonds? (Hint: use the forward rate to find the implied euro rate from their US borrowing rate.) b. What is the notional principal of the swap in dollars? c. What is the firms annual interest payment on its bonds? d. What annual swap payment does the firm make to the counterparty? e. What annual payment does the firm receive from the counterparty? f. What is their effective euro-denominate interest rate the first year? (Hint: use the one-year forward rate to find the euro equivalent of the difference between their dollar payment on their loan and the dollars received from the swap and consider this part of the euro borrowing costs.