Your company has been doing business for some time in Australia under a subsidiary. Your company...

 

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Your company has been doing business for some time in Australia under a subsidiary. Your company has decided that it wants to bring over a large amount of the firm's Australian profits. The firm has decided for the next 12 months to convert AUD into USD each month. As a result, you are looking into entering a swap to receive USD and pay AUD. Assume the notional principle on the transaction is USD 200,000,000 and the current spot rate is 0.7500 USD/ 1 AUD. The current rates below are per annum with continuous compounding. Months USA 1 234 3 4 5 6 7 8 9 10 0.80% 0.80% 1.00% 1.00% 1.25% 1.25% 1.50% 1.50% 1.75% 1.75% Australia 2.70% 2.80% 2.90% 3.00% 3.00% 3.00% 3.10% 3.10% 3.20% 3.25% A) What is the fixed rate for USD and AUD in this problem? B) What are the USD cash flows and the AUD cash flows each month? C) 6 months have now passed and the new rates are listed below. The current exchange rate is also 0.7475 USD/ 1 AUD. What is your current position worth now? Months 1 2 3 4 5 6 USA 1.60% 1.60% 1.75% 1.75% 1.90% 2.00% Australia 3.00% 3.00% 3.25% 3.25% 3.40% 3.40% Your company has been doing business for some time in Australia under a subsidiary. Your company has decided that it wants to bring over a large amount of the firm's Australian profits. The firm has decided for the next 12 months to convert AUD into USD each month. As a result, you are looking into entering a swap to receive USD and pay AUD. Assume the notional principle on the transaction is USD 200,000,000 and the current spot rate is 0.7500 USD/ 1 AUD. The current rates below are per annum with continuous compounding. Months USA 1 234 3 4 5 6 7 8 9 10 0.80% 0.80% 1.00% 1.00% 1.25% 1.25% 1.50% 1.50% 1.75% 1.75% Australia 2.70% 2.80% 2.90% 3.00% 3.00% 3.00% 3.10% 3.10% 3.20% 3.25% A) What is the fixed rate for USD and AUD in this problem? B) What are the USD cash flows and the AUD cash flows each month? C) 6 months have now passed and the new rates are listed below. The current exchange rate is also 0.7475 USD/ 1 AUD. What is your current position worth now? Months 1 2 3 4 5 6 USA 1.60% 1.60% 1.75% 1.75% 1.90% 2.00% Australia 3.00% 3.00% 3.25% 3.25% 3.40% 3.40%

Answer rating: 100% (QA)

A To calculate the fixed rate for USD and AUD in this problem we need to find the difference between the interest rates for each currency at each period For each period we subtract the Australian inte... View the full answer