Come Up with a Swap (Principal + Interest)for Two Parties

Essay

Come up with a swap (principal + interest)for two parties A and B who have the following borrowing opportunities. $$\begin{array} { | c | c c | } \hline & \boldsymbol { \epsilon } & \boldsymbol { \$ } \\\hline \mathrm { A } & € \mathrm { €IBOR } \% & \$ 8 \% \\\mathrm {~B} & € \mathrm { ELBOR } + 1 / 2 \% & \$ 8.20 \% \\\hline\end{array}$$ The current exchange rate is $1.60 = €1.00.Company "A" wishes to borrow $1,000,000 for 5 years and "B" wants to borrow €625,000 for 5 years.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.Firms A and B are more concerned with what currency that they borrow in than whether the debt is fixed or floating.