In September 2020 swap dealers were quoting a rate for five-year euro interest rate swaps of 4.5% against Euribor (the short-term interest rate for euro loans). Euribor at the time was 4.1%. Suppose that A arranges with a dealer to swap a €10 million five-year fixed rate loan for an equivalent floating-rate loan in euros.

a. What is the value of this swap at the time that it is entered into?

b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1%. Who gains and who loses?

c. What is now the value of the swap?

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