SHK, Inc. can borrow euros for 5 years at a coupon rate of 1.95%. Alternatively, it can borrow dollars for 5 years at a rate of 1.85%. The 5-year euro swap rates are 1.75-1.85% and the dollar swap rates are 2.50-2.60%. The exchange rate is S0($/) = $1.30/.

1 Determine the dollar cash flow that SHK would have to pay under a currency swap where it borrows $50,000,000 and swaps the debt service into euros.

2 Determine the euro AIC.