Question $4($Marks $4)$

A plain vahilla interest swap has just been arranged. Interest will be calculated on a semiannual basis. Accrual period method $30/360$ day count $($advanced set, settled in arrears$)$

Oman Cables Company needs a Euro loan to buy equipment for its new project. The loan is required for $10$ years and amount is $10$ million Euros. Oman Cables managed to get a Euro floating rate loan from Bank Muscat, but is interested in a fixed rate loan. Therefore Oman Cables arranged for a swap and agreed to pay $11\mathrm{.}5\%$ per year under the swap.

Marks & Spencer operates in Oman. Marks & Spencer needs a $10$ year $10$ million Euro Loan. Marks & Spencer managed to get a fixed rate loan from Barclays, but wants floating rate funds. Marks & Spencer arranged for a swap and agreed to pay LIBOR$+2\%.$

The initiation date of the swap is $1^{st}$ Jan $2019.$

a$)$ Draw a diagram showing how the swap works