Question 4 Delphi is a us based automotive parts supplier which has annual sales of over US$26 bn. Delphi has expanded its markets far beyond tradtional automoble manufacturers to diversifty its sales base. As part of the general diversification efforts, Delphi wishes to diversify its debt portfolio as well. Delphi enters into a US$50 million swap where it agrees to pay Euro cash flows and receive US Dollar cash flows using the following quotes and information: Swap 5- year 5-year ask 50,000,000 US $ 5.8690 5.89% Euros 4.01% 4.05% Values Rates bid Notional principal Spot exchange rate, $/ 1.16 (i) Show via a diagram, how this swap will work. Calculate all cash flows in both currencies over entire 5 years. [8 marls] (ii) Assume that after two years, Delphi decides to unwind the swap. If 3- year fixed rate in Euro has now risen to 5.05% and 3-year US$ fixed rate has fallen to 4.40%, and current spot rate is $1.02/, should Delphi unwind the swap? How much would Delphi pay or receive? [12 marks] Question 4 Delphi is a us based automotive parts supplier which has annual sales of over US$26 bn. Delphi has expanded its markets far beyond tradtional automoble manufacturers to diversifty its sales base. As part of the general diversification efforts, Delphi wishes to diversify its debt portfolio as well. Delphi enters into a US$50 million swap where it agrees to pay Euro cash flows and receive US Dollar cash flows using the following quotes and information: Swap 5- year 5-year ask 50,000,000 US $ 5.8690 5.89% Euros 4.01% 4.05% Values Rates bid Notional principal Spot exchange rate, $/ 1.16 (i) Show via a diagram, how this swap will work. Calculate all cash flows in both currencies over entire 5 years. [8 marls] (ii) Assume that after two years, Delphi decides to unwind the swap. If 3- year fixed rate in Euro has now risen to 5.05% and 3-year US$ fixed rate has fallen to 4.40%, and current spot rate is $1.02/, should Delphi unwind the swap? How much would Delphi pay or receive? [12 marks]