An Australian company observes they can borrow in the US at 4% p.a. whereas to borrow locally

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An Australian company observes they can borrow in the US at 4% p.a. whereas to borrow locally would cost 6% p.a. They decide to borrow US $10 million for one year when the AUD/ Usd rate is 0.76 and to hedge the FX risk with an FX Swap.

a) How much USD is repayable in 1 year?

b) What rated will make up FX swap (assuming FX dealer used above data to compute their forward rate)?

c) How much AUD will be required to repay the debt?

d) What is the effective borrowing costs?

Related Book For answer-question

Bank Management and Financial Services

ISBN: 978-0078034671

9th edition

Authors: Peter Rose, Sylvia Hudgins

Posted Date: Apr 14, 2023 11:09 PM

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An Australian company observes they can borrow in the US at 4% p.a. whereas to borrow locally

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a The amount of USD repayable in one year would be USD 10000000 b To hedge the FX risk the Australia... View the full answer

Bank Management and Financial Services

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