1) Suppose that the term structure of interest rates is flat in the United States and Australia. The USD interest rate is 7% per annum and the AUD rate is 9% per annum. The current value of the AUD is 0.62 USD. Under the terms of a swap agreement, a financial institution pays 8% per annum in AUD and receives 4% per annum in USD. The principals in the two currencies are $12 million USD and 20 million AUD. Payments are exchanged every year, with one exchange having just taken place. The swap will last 2 more years. What is the value of the swap to the financial institution? Assume all interest rates are continuously compounded.

2) Company X is based in the United Kingdom and would like to borrow $50 million at a fixed rate of interest for 5 years in US funds. Because the company is not well known in the United States, this has proved to be impossible. However, the company has been quoted 12% per annum on fixed-rate 5-year sterling funds. Company Y is based in the United States and would like to borrow the equivalent of $50 million in sterling funds for 5 years at a fixed rate of interest. It has been unable to get a quote but has been offered US dollar funds at 10.5% per annum. Five-year government bonds currently yield 9.5% per annum in the United States and 10.5% in the United Kingdom. Suggest an appropriate currency swap that will net the financial intermediary 0.5% per annum.

Please show steps and formulas.