A five-year currency swap was created between two AAA borrowers exactly one year ago. The swap was for U.S. $100 million against AUD 200 million at the current spot exchange rate of AUD/$2.00. The interest rates were 10% in U.S. dollars and 7% in Australian dollars. Today (exactly one year later), the interest rates have dropped to 8% in U.S. dollars and 6% in Australian dollars, and the exchange rate is now AUD/$1.9.

a. Calculate the value of the swap using bonds approach

1. For the party that receives US$ and pays AUD

2. For the party that receives AUD and pays US$

b. Do these values make sense? How?