An Italian Corporation Enters into a Two-Year Interest Rate Swap

question 43

Essay

An Italian corporation enters into a two-year interest rate swap in euros on April 1, 2000. The swap is based on a principal of €100 million, and the corporation will receive 7% fixed and pay six-month Euribor. Swap payments are semiannual. The 7% fixed rate is quoted as an annual rate using the European method, so the implied semiannual coupon is 3.44% [since (1.0344)² = 1.07]. Two years later, the swap is finally settled, and the following Euribor rates have been observed:
$$\begin{array} { c c c c c } \text { Apr. 1, 2000 } & \text { Oct. 1, 2000 } & \text { Apr. 1, 2001 } & \text { Oct. 1, 2001 } & \text { Apr. 1, 2002 } \\\hline 6.5 \% & 7.5 \% & 8 \% & 7.5 \% & 6 \% \\\hline\end{array}$$ a. What have the swap payments or receipts for the corporation been on each swap payment date?
b. The same Italian corporation also entered another two-year interest rate swap in euros on April 1, 2000. The swap is based on a principal of €100 million, and the corporation contracted to receive 7% fixed and pay six-month Euribor. On this swap, the payments are annual. Hence, the two successive six-month Euribor are compounded. Assuming that the Euribor rates given in the previous problem have been observed, what have the two annual swap payments been?

Recognize the importance of environmental factors and community infrastructure in disease prevention.

Understand the historical development of public health initiatives and their impact on community health.

Analyze the role of government and non-governmental organizations in the advancement of public health.

Identify key figures and their contributions to public health and nursing.

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Definitions:

Immigration

The action of coming to live permanently in a foreign country.

Foreign Tourists

Visitors from other countries who travel to a different country for leisure, business, or other purposes, contributing to the host country's economy.

Merchandise Trade Imbalance

A discrepancy between a country's exports and imports of tangible goods, leading to either a trade surplus or deficit.

Overall Trade Imbalance

The difference between a country's total exports and total imports over a certain period, indicating whether a country is in a trade surplus or deficit.