Question: 1. 2. 3. 4. 5. 6. Analyze the swap structure, and comment on whether Metro do Porto entered into a speculative transaction or one

1. 2. 3. 4. 5. 6. Analyze the swap structure, and comment on whether Metro do Porto entered into a speculative transaction or one designed to reduce risk. Compute Metro do Porto's net cash flows on the payment dates, and report them in a table. Let us value the swap at different points during its life: (i) What is the value of the swap from Metro do Porto's point of view, as of March 1, 2010? (ii) What is the value of the swap from Metro do Porto's point of view, as of March 1, 2014? Please state, in a clear way, any assumptions you make to answer this question. With hindsight, what has been the "all-in" cost of borrowing associated with the swap for Metro do Porto overall ? What might motivate company executives and bankers to enter into such contracts as Metro do Porto did? Suggest methods to reduce the risk of derivative exposure and mishaps in companies.

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