A company based in the United Kingdom has an Italian subsidiary. The subsidiary generates 25,000,000 a year,

Question:

A company based in the United Kingdom has an Italian subsidiary. The subsidiary generates €25,000,000 a year, received in equivalent semiannual installments of €12,500,000. The British company wishes to convert the euro cash flows to pounds twice a year. It plans to engage in a currency swap in order to lock in the at which it can convert the Euros to pounds. The current is €1.5/£. The fixed rate on a plain vanilla currency swap in pounds is 7.5 percent per year, and the fixed rate on a plain vanilla currency swap in Euros is 6.5 percent per year.
a. Determine the notional principals in Euros and pounds for a swap with semiannual payments that will help achieve the objective.
b. Determine the semiannual cash flows from this swap.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...