Question: Using the table of swap rates in the chapter (Exhibit 8.13), and assume Ganado enters into a swap agreement to receive euros and pay Japanese

Using the table of swap rates in the chapter (Exhibit 8.13), and assume Ganado enters into a swap agreement to receive euros and pay Japanese yen, on a notional principal of €5,000,000. The spot exchange rate at the time of the swap is ¥104/€.

a. Calculate all principal and interest payments, in both euros and Swiss francs, for the life of the swap agreement.

b. Assume that one year into the swap agreement Ganado decides it wishes to unwind the swap agreement and settle it in euros. Assuming that a two-year fixed rate of interest on the Japanese yen is now 0.80%, and a two-year fixed rate of interest on the euro is now 3.60%, and the spot rate of exchange is now ¥114/€, what is the net present value of the swap agreement? Who pays whom what?

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