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

Question 50

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Come up with a swap (exchange of interest and principal) for parties A and B who have the following borrowing opportunities. 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 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

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