An Italian company, New Century Corp, enters into a 1-year interest rate swap with Northern European...

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Finance

An Italian company, New Century Corp, enters into a 1-yearinterest rate swap with Northern European Bank. The notionalprinciple of the swap is €100 million. Payments will be madesemiannually on the basis of 180/360 (180 days in the settlementperiod and 360 days per year). New Century will pay a fixed rate of4% and receive floating rate Euribor plus 1%. The 180-day Euriborrates are as below:
Current: 2.8% In 1 quarter:3% In 2 quarters: 3.4% In 3 quarters:3.7%
A. Determine the initial exchange of cash that occurs at the startof the swap.
B. Determine the semiannual payments for the first year (firsthalf, second half).
C. Determine the final exchange of cash that occurs at the end ofthe swap.

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4.2 Ratings (675 Votes)

A There will be no initial exchange of cash as it is an interest swap Currency swaps involve exchange of cash at swap initiation B First half interest payment Notional See Answer

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An Italian company, New Century Corp, enters into a 1-yearinterest rate swap with Northern European Bank. The notionalprinciple of the swap is €100 million. Payments will be madesemiannually on the basis of 180/360 (180 days in the settlementperiod and 360 days per year). New Century will pay a fixed rate of4% and receive floating rate Euribor plus 1%. The 180-day Euriborrates are as below:Current: 2.8% In 1 quarter:3% In 2 quarters: 3.4% In 3 quarters:3.7%A. Determine the initial exchange of cash that occurs at the startof the swap.B. Determine the semiannual payments for the first year (firsthalf, second half). C. Determine the final exchange of cash that occurs at the end ofthe swap.