Question

A US Company needs 10 million euros now while a German company needs $12 million now...

A US Company needs 10 million euros now while a German company needs $12 million now and they will repay each other in 1 year. Set up a currency swap for the 2 companies using the information below. Show the swap now and a year from now.

Spot                         $1.2 per Euro           Euros .8333 per $1     

1 year Forward       $1.18 per Euro          Euros .8475 per $1

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Answer #1

Answer :

(a) In a currency Swap a US company will send $12 million to a German company and a German company will send €10 million to US company.

(b).After 1 Year

US Company -
Befire 1 year amount received from German company €10,000,000.00
Equivalent to $ = € 10,000,000*$1.20 $12,000,000.00
After 1 Year amount to be repaid in terms of $ $11,800,000.00
(€10,000,000*$1.18) -
German Company -
Before 1Year amount received from US Comapny $12,000,000.00
Equivalent to € = $12,000,000 * €0.8333 € 10,000,000.00
After 1 Year amount to be repaid in terms of € € 10,170,000.00
($12,000,000*€0.8475 -
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