Question

High Energy enters into a currency swap with Citi Bank in which it pays a fixed...

High Energy enters into a currency swap with Citi Bank in which it pays a fixed rate in U.S dollars, and Citi Bank pays a fixed rate in euros. The notional principals are $112 million and €100 million (equivalent in value at the current exchange rate of $1.12 per euro.) The fixed rates are 4.5% in dollars and 4% in euros. The swap specifies that the two parties exchange the notional principal at the start and at the end of the swap. Payments are made quarterly on the basis of 90/360.

A. Determine the initial exchange of cash that occurs at the start of the swap.

B. Determine the quarterly payments.

C. Determine the final exchange of cash that occurs at the end of the swap.

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