QUESTION 6 (15 POINTS) Company XYZ Inc, raised 200 million fixed rate annual bond paying 7% fixed rate for 4 years per the Indenture but wants to explore possibility to enter into a currency swap with a notional amount equal to the Bond amount in dollars. If the Currency Swap exchage rate is 1.25x S/Euro with 8.5% rate, run the two different scenarios of 1) Not entering into the currency swap and projecting the exchange rate using the forward rates below and 2) Entering into the currency swap. From these two scenarios which is one more beneficial (Tip: use the Euro rate as your Discount Rate for both); Time Unhedged Euro Forward Hedges Dollar Cash Flow Cash Flow 19 million Exchange Rate (5) million Present Value of the unhedged Cash Flows (3) Time Cash Flow (5) million Present Value of the hedged Cash Flows (5) 1.2000 1.200 1.3100 Answer: Answer: Answer Benefit QUESTION 6 (15 POINTS) Company XYZ Inc, raised 200 million fixed rate annual bond paying 7% fixed rate for 4 years per the Indenture but wants to explore possibility to enter into a currency swap with a notional amount equal to the Bond amount in dollars. If the Currency Swap exchage rate is 1.25x S/Euro with 8.5% rate, run the two different scenarios of 1) Not entering into the currency swap and projecting the exchange rate using the forward rates below and 2) Entering into the currency swap. From these two scenarios which is one more beneficial (Tip: use the Euro rate as your Discount Rate for both); Time Unhedged Euro Forward Hedges Dollar Cash Flow Cash Flow 19 million Exchange Rate (5) million Present Value of the unhedged Cash Flows (3) Time Cash Flow (5) million Present Value of the hedged Cash Flows (5) 1.2000 1.200 1.3100 Answer: Answer: Answer Benefit