Suppose Assicurazioni Generali, the largest insurance company in Italy, wants to fund its operations in the United
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Question:
Suppose Assicurazioni Generali, the largest insurance company in Italy, wants to fund its operations in the United States, and for that, it needs US dollars. But it discovers that it can borrow cheaper in the euro market. The company decides to fund itself in euros and swap the cash flow into US dollars. Assicurazioni is contracting a currency swap on apayfixed million twoyear swap with semiannual interest payments. The swap agreement provides that both parties pay a fixed rate of US interest rate and in the eurozone. Suppose the current exchange rate is Euro $
a What would be the swap corresponding notional value in US dollars? Will the notional values be exchanged at initiation?
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