Come Up with a Swap (Exchange of Interest and Principal)for

Essay

Come up with a swap (exchange of interest and principal)for parties A and B who have the following borrowing opportunities. The current exchange rate is $1.60 = €1.00.Company "A" is in Milan,Italy and wishes to borrow $1,000,000 at a floating rate for 5 years and company "B" is a U.S.firm that wants to borrow €625,000 for 5 years at a fixed rate of interest.You are a swap dealer.Quote A and B a swap that makes money for all parties and eliminates exchange rate risk for both A and B.