Microsoft, a US company, entered into a swap to hedge its foreign exchange exposure. In this currency swap, it pays 5.2% in EUR and receives 5.5% in USD (rates are APR compounded semi-annually). Payments are made every year and three payments are left. The principals in the two currencies are 75 million EUR and $250 million USD.

If the EUR OIS is 4%, the USD OIS is 2.6% (both which are continuously compounded), and the term structure of these rates is flat.

1. What is the value of the swap to Microsoft, if the spot exchange rate of the USD is 0.8173 EUR (or 1 EUR = $1.2236 USD)?

2. Without doing any calculations, how do you think your answer will change if the OIS term structure for both currencies is upward sloping?