Interest payments in both currencies for the life of swap

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Reference no: EM131312533

Tire King is a U.S. based MNC with annual sales of over $26 billion. This firm has subsidiaries across the globe therefore it earns cash flows in different currencies. Tire King took loan in the U.S, but it is earning most of the revenue from that in the Eurozone. In order to match its cash flows with its obligations, Tire King want to create a swap in which it will pay euro and receive dollars. The notional amount is $50 million 7-year maturity. Cross currency interest rate swap data is given below.

Spot rate $1.16 / Euro

Swap Rates 7- year bid 7-year ask

US dollar 5.86% 5.89%

Euros 4.01% 4.05%

a. Calculate all principal and interest payments in both currencies for the life of the swap.

b. Assume Tire King terminates swap after three years and 4-year fixed rates of interest in euros have risen to 5.35% and 4-year fixed rate dollars have fallen to 4.40%, and the current spot exchange rate of $1.02/€, what is the net present value of the swap agreement?

Reference no: EM131312533

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