Question
Set a 4 year currency swap for companies A and B. Company B wants to issue debt in Germany, in Euros, while company A wants
Set a 4 year currency swap for companies A and B. Company B wants to issue debt in Germany, in Euros, while company A wants to issue debt in the U.S., in Dollars. The interest rates they can get are:
| Company A | Company B |
Interest in EUR | 1% | 3% |
Interest in USD | 2% | 3% |
The exchange rate at the beginning is 1.1100 [USD/EUR], rebalance the swap is the exchange rate at the end of year 2 is 1.1438 [USD/EUR]. Use a nominal of 1,000 [EUR], model the swap as an exchange of bonds sold at par.
ANSWER:All the typical tables with the rates and payments. Also, the amount required to balance the swap after the change in the exchange rate.
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