Aron Company enters into a $2-$year US$ $/$ Euro swap with Brun Inc. on a notional principal

amount of Euros $10$ million $($US$$11$ million at current spot rate$).$ Aron agrees to pay Brun $5\%$

semi$-$annually in Euros. Brun Inc agrees to pay US$ LIBOR$6+50$ bps semi$-$annual rate.

a$.$ Based on the following market data, calculate the net Euro payment from Aron Co$.(10$

marks$)$

Time LIBOR$6$ US$ $/$ Euro spot Net $ receipt $/$

$($payment$)$

T $1\mathrm{.}1000$

T $+6$mos $4\mathrm{.}75\%1\mathrm{.}1050$

T $+12$ mos $4\mathrm{.}95\%1\mathrm{.}1500$

T $+18$ mos $5\mathrm{.}00\%1\mathrm{.}1800$

T $+24$ mos $4\mathrm{.}90\%1\mathrm{.}1600$

b$.$ Compare and contrast a fixed$-$floating interest rate swap with a fixed$-$floating currency

swap