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A British bank issues a $130 million, three-year Eurodollar CDat a fixed annual rate of 8 percent. The proceeds of the CD arelent to a British company for three years at a fixed rate of 10percent. The spot exchange rate of pounds for U.S. dollars is£1.50/US$.a-2.What are the cash flows if exchange rates are unchanged over thenext three years? (Do not round intermediate calculations.Enter your answers in millions rounded to 2 decimalplaces. (e.g.,32.16))Eurodollar CDBritish Loan tCash Outflow (U.S.$)(£)Cash Inflow (£)Spread (£) 1millionmillionmillionmillion 2millionmillionmillionmillion 3millionmillionmillionmillion b.If the U.S. dollar is expected to appreciate against the poundto £1.65/$1, £1.815/$1, and £2.00/$1 over the next three years,respectively, what will be the cash flows on this transaction?(Negative amount should be indicated by a minus sign. Donot round intermediate calculations. Enter your answers in millionsrounded to 2 decimal places. (e.g., 32.16))Eurodollar CDBritish Loan tCash Outflow (U.S.$)(£)Cash Inflow (£)Spread (£) 1millionmillionmillionmillion 2millionmillionmillionmillion 3millionmillionmillionmillion c.If the British bank swaps U.S. dollar payments for British poundpayments at the current spot exchange rate, what are the cash flowson the swap and on the entire hedged position? Assume that the U.S.dollar appreciates at the same rates as in part (b).(Do not round intermediate calculations. Enter your answersin millions rounded to 2 decimal places.(e.g.,32.16)) tCash Flow(£)Swap Payments(£)Net SwapCash Flow(£)Total Cash Flow (£) 1millionmillionmillionmillion 2millionmillionmillionmillion 3millionmillionmillionmillion
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