Question: How does a plain vanilla interest rate swap differ from a currency swap?
The next two questions use the following information:
American Auto enters into a plain vanilla currency swap deal with European Auto. American raises $30 million at an 8 percent fixed interest rate, while European raises an equivalent amount of _33 million at 9 percent. They swap these two loans. The swap lasts for three years, and the payments take place at the end of each year.