1.A U.S. firm (USF) issued $5,000,000 worth of LT dollar-denominated debt a few months ago at 7.4% per year.The firm wishes to effectively transform this issue into floating-rate, -denominated debt.The firm goes to CCB and inquires about what it can do to get the desired result.The bank provides USF with the following quotes.You are the consultant to USF.

CCB quotes

U.S. dollars - 5.30% bid for and 5.45% ask against 6-month dollar LIBOR(3-yr swap)

Euros - 4.2% bid and 4.3% asked against 6-month euro LIBOR (3-yr swap)

U.S. dollars - 5.30% bid for and 5.45% ask against 6-month euro LIBOR(3-yr swap)

Euros - 4.2% bid and 4.3% asked against 6-month dollar LIBOR (3-yr swap)

Spot exchange rate = $1.50/

You inform USF that a swap can be used to transform their debt.The swap's notional principal will need to be adjusted so that the cash inflow from the swap will offset the cash outflow associated with the debt.You provide them with the following cash flow worksheet based on some hypothetical LIBOR rates over the next three years.Every number you write down has to have the appropriate currency prefix (either or $) and has to have parentheses around the number if it is a cash outflow.Also, please note that the all interest rates are in yearly form whereas the cash flows occur every six months!

SWAP 1

-LIBOR$-LIBORUSF's receiptUSF's payment

Time

0 (initiation)

0.53.6%4.9%

1.04.0%4.8%

1.53.9%5.2%

2.04.5%5.7%

2.54.9%6.0%

3.04.8%5.9%

3.0 (maturity)

Answer rating: 100% (QA)

Based on the provided information here is the cash flow worksheet for the swap SWAP ... View the full answer