TNB has a 10 year, 750 million loan outstanding with a Japanese bank. The Yen loan has a 2.5% annual interest rate. The loan was taken 5 years ago and so has 5 more years to go.

Daibochi, a Japanese plastics maker with operations in Malaysia has just negotiated a RM5million, 5-year loan with Maybank at 7.5% annual interest.

Both companies are worried about foreign exchange exposure.

Design a currency swap that will enable both companies to manage exchange rate risk. Assume debt servicing will be on 6-monthly basis, the spot Yen/Ringgit rate is 10Y/Ringgit