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August PLC is a UK-based energy trading company. The management of the company aims to diversify the currency of denomination of its debt portfolio. Assume that August PLC enters in a 100 million 4-year cross currency interest rate swap to do just that - pay euros () and receive GBP (). Using the data (appearing in % terms) in the following table: a) Calculate all principal and interest payments in both currencies for the life of the swap. The current spot exchange rate is 1.1EUR=1GBP (i.e. 1.1 per ). (10 marks) b) Assume that, three years later, August PLC decides to unwind the swap agreement. If all interest rates (as per the above table) have now uniformly increased by 10 basis points, and the current spot exchange rate is 1.15 EUR =1GBP, who pays whom and what? Furthermore, assume that there is a penalty of 100,000 when terminating the swap, that must be paid by August PLC. (15 marks) August PLC is a UK-based energy trading company. The management of the company aims to diversify the currency of denomination of its debt portfolio. Assume that August PLC enters in a 100 million 4-year cross currency interest rate swap to do just that - pay euros () and receive GBP (). Using the data (appearing in % terms) in the following table: a) Calculate all principal and interest payments in both currencies for the life of the swap. The current spot exchange rate is 1.1EUR=1GBP (i.e. 1.1 per ). (10 marks) b) Assume that, three years later, August PLC decides to unwind the swap agreement. If all interest rates (as per the above table) have now uniformly increased by 10 basis points, and the current spot exchange rate is 1.15 EUR =1GBP, who pays whom and what? Furthermore, assume that there is a penalty of 100,000 when terminating the swap, that must be paid by August PLC. (15 marks)

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