Question

KLM Royal Dutch Airlines intends to terminate an ongoing cross currency swap where it swaps $1,000,000 (undesired currency) yearly payments with €900,000 (desired currency) yearly payments with the swap dealer. There are two such yearly payments outstanding along with a principal repayment of $7,000,000 swapped for €6,300,000 due in two years. The current US Dollar interest rate is 2% while the Euro interest rate is 1.8%. The spot exchange rate is €0.92/$. If the cross-currency swap is terminated ______ needs to pay ------- an amount of __----- O KLM; Swap dealer; $144,442 Swap dealer; KLM; €157,003 O KLM; Swap dealer; €157,003 Swap dealer; KLM; €144,442 O KLM; Swap dealer; €144,442

Answer 1

Given that, Termination of ongoing currency swaps - $ 1,000,000 yearly payments = € 900,000 Principal repayment = $ 7,000,000 Serepped due in two years = € 6,300,000 Current interest rate of usd = 2%. " i , Euro = 1.84 Spot exchange - €0.92/$. Secap daleur needs to pay KLM on amount of € 157,003 Ans. Sewerp dealea; KLM; £ 1570037