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5. Consider a 3-year currency swap with a notional principal of AUD100,000, whereby A receives annual payments in Australian dollars and B receives annual payments

5. Consider a 3-year currency swap with a notional principal of AUD100,000, whereby A receives annual payments in Australian dollars and B receives annual payments in U.S. dollars at a contracted rate of 0.9300 (USD/AUD). The market exchange (USD/AUD) rate assumes the values 0.9500, 0.9300 and 0.8900 at the end of each year. Calculate the cash flows in year one.

Answer: B pays A USD2,000 Explain how?

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