A US company needs to borrow 100 million Australian dollars ( ASS) for one year for...

 

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A US company needs to borrow 100 million Australian dollars ( ASS) for one year for its Australian subsidiary. The company decides to issue US - denominated bonds in an amount equivalent to A$100 million. Then the company enters into a one-year currency swap with quarterly reset (30/360 day count) and the exchange of notional amounts at initiation and at maturity. At the swap's initiation, the US company receives the notional amount in Australian dollars and pays to the counterparty, the notional amount in US dollars. At the swap's expiration, the US company pays the notional amount in Australian dollars and receives from the counterparty the notional amount in US dollars. Based on interbank rates, we observe Australian annual rate of 6%, and US annual rate of 7.5% at Time 0: a. Assume that the counterparties in the currency swap agree to an ASW US spot exchange rate of 1.140 (expressed as number of Australian dollars for US$1). What is the notional amount (in US$ millions)? b. What are the fixed swap quarterly payments in the currency swap? Who pays whom and how much? A US company needs to borrow 100 million Australian dollars ( ASS) for one year for its Australian subsidiary. The company decides to issue US - denominated bonds in an amount equivalent to A$100 million. Then the company enters into a one-year currency swap with quarterly reset (30/360 day count) and the exchange of notional amounts at initiation and at maturity. At the swap's initiation, the US company receives the notional amount in Australian dollars and pays to the counterparty, the notional amount in US dollars. At the swap's expiration, the US company pays the notional amount in Australian dollars and receives from the counterparty the notional amount in US dollars. Based on interbank rates, we observe Australian annual rate of 6%, and US annual rate of 7.5% at Time 0: a. Assume that the counterparties in the currency swap agree to an ASW US spot exchange rate of 1.140 (expressed as number of Australian dollars for US$1). What is the notional amount (in US$ millions)? b. What are the fixed swap quarterly payments in the currency swap? Who pays whom and how much?

Answer rating: 100% (QA)

To calculate the notional amount in US dollars we need to divide the Australian dollar amount by the ASW US spot exchange rate a Notional Amount in US dollars Notional Amount in Australian dollars AUD ... View the full answer