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Under the terms of a currency swap, a company has agreed to receive a fixed interest...

Under the terms of a currency swap, a company has agreed to receive a fixed interest rate of
10% per annum on an American dollar loan with a notional principal of $5 million. In exchange,
the company will pay a fixed interest rate of 8% per annum on a Dutch Euro Loan with a notional
principal of €2.5 million. Net interest payments are exchanged every six months. The swap has a
remaining life of thirteen months. The current interest rates are 7% per annum in America and 6%
per annum in Holland. Assume both rates are with continuous compounding for all maturities
(Assuming a flat terms structure). The current exchange rate is €1 = $2. Calculate the current value
of the currency swap for the company in American dollars.

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

NO INTERMEDIATE ROUNDING IS DONE

jeff jeffy answered 2 years ago
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