Ashton Bishop is the debt manager for World Telephone, which needs €3.45 billion Euro financing for its operations. Bishop is considering the choice between issuance of debt denominated in: • Euros (€), or ⚫ U.S. dollars, accompanied by a combined interest rate and currency swap. Bishop believes that issuing the U.S.-dollar debt and entering into the swap can lower World's cost of debt by 45 basis points. Immediately after selling the debt issue, World would swap the U.S. dollar payments for Euro payments throughout the maturity of the debt. She assumes a constant currency exchange rate throughout the tenor of the swap. Characteristic Par value Term to maturity Fixed interest rate Interest payment Spot currency exchange rate 3-year tenor euro/U.S. dollar fixed interest rates U.S. Dollar Currency Euro Currency Debt Debt €3.45 billion 3 years 6.25% Annual $3 billion 3 years 7.75% Annual $1.02 per euro ($1.02/€1.00) 5.92% euro/7.42% U.S. dollar Required: b. Enter the notional principal and interest payment cash flows of the combined interest rate and currency swap. Note: Round the final answers to two decimal places. Cash Flows of the Swap Year 0 Year 1 Year 2 Year 3 World pays Notional principal Interest payment billion million million billion billion million million million World receives Notional principal billion million million billion Interest payment billion million million million

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.