With reference to the NSP/KLM currency swap, answer the following questions:

a. What is the implied forward exchange rate used throughout the life of the swap for exchanging cash flows?

b. At the end of year 3 but immediately prior to swapping cash flows as a result of the € appreciation against the U.S. dollar to 1. 80, the interest rate on threeyear

€-denominated bonds has fallen to 4. 85 percent. What is the value of the swap to (1) NSP and (2) KLM?

c. Using the information provided in (b), discuss a macroeconomic scenario that would increase the value of the currency swap to NSP.

d. What is the new implied forward exchange rate?