Tom Ltd has borrowed $2$ million USD by issuing debentures which mature in exactly five years at a

coupon rate of $6\%$ p$.$a$.$ paid semi$-$annually. Jerry Ltd has borrowed $2\mathrm{.}6$ million EUR for five years at

the floating rate of six$-$month ESTR plus $1\mathrm{.}0\%$ p$.$a$.,$ with semi$-$annual interest payments.

Tom has income which is essentially floating rate EUR, whilst Jerry has predominantly fixed rate

USD income. Accordingly, Tom and Jerry have approached you as a swap dealer and requested that

you arrange for an on$-$market swap that will reduce both their exchange rate and interest rate risk.

The following data has been gathered:

USD$/$EUR spot rate:

Five year swap mid$-$rate:

$1$USD$=1\mathrm{.}3$ EUR

$8\mathrm{.}0\%$ p$.$a$.$ USD against $6-$month EUR ESTR flat.

$4\mathrm{.}0\%$ p$.$a$.$ EUR against $6-$month EUR ESTR flat.

For dealer pays fixed$-$rate subtract $3$ basis points,

for dealer receives fixed add $3$ basis points.

i$)$ Diagram the interest and income flows for a swap that would meet their requirements.

ii$)$ If$,$ in exactly six months' time, the exchange rate was $1$ USD $=1\mathrm{.}38$EUR, what would be

Jerry's net interest payments $($as a result of the swap and direct borrowing$)$ on that date?