The Indian rupee (INR) interest rate is 12% (s.a.), while the USD interest rate is 5% (s.a.). Tortelli Co., a U.S. firm, entered into a currency swap with a swap dealer, where Tortelli pays 6.0% semi-annually in USD and receives 10% semi-annually in INR. The principals in the two currencies are USD 4 million and INR 120 million. The swap will last for another two years. The exchange rate is .027 USD/INR. For simplicity, assume the term structure in India and in the U.S. is flat.

A. Draw a diagram showing the semi-annual swap cash flows (in INR and in USD). B. Value this currency swap for Tortelli Co. C. Suppose the USD depreciates against the INR. Without doing any calculations, does the value of the swap increase or decrease for Tortelli? D. A year from now, the exchange rate is .025 USD/INR. Assuming that nothing else has changed, calculate the new value of the swap for Tortelli.