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Suppose Assicurazioni Generali, the largest insurance company in Italy, wants to fund its operations in the United States, and for that, it needs US dollars.

Suppose Assicurazioni Generali, the largest insurance company in Italy, wants to fund its operations in the United States, and for that, it needs US dollars. But it discovers that it can borrow cheaper in the euro market. The company decides to fund itself in euros and swap the cash flow into US dollars. Assicurazioni is contracting a currency swap on apay-fixed 50 million two-year swap with semi-annual interest payments. The swap agreement provides that both parties pay a fixed rate of 5% US interest rate and 3% in the eurozone. Suppose the current exchange rate is 1 Euro = $1.06.
a. What would be the swap corresponding notional value in US dollars? Will the notional values be exchanged at initiation?

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