An Australian company considers to enter into a currency swap with a AUD $10$ mil debt of $5$ years maturity for an equivalent amount of EUR debt. The interest rate on this debt of Australian company is $10\%$ p$.$a$.,$ paid semiannually. A swap bank proposed a swap that covers its debt in AUD in exchange for payments in EUR under the swap at a rate of $8\%$ p$.$a$.,$ paid semiannually $($worth AUD $10$ mil, $5$ years maturity$).$ The current spot rate is AUD$1\mathrm{.}6/$EUR$.$ Which of the following is TRUE if the australian company accepts the swap deal?

Question $18$Answer

a$.$

The Australian company would pay the interest of AUD $0\mathrm{.}25$ mil semiannually, and pay EUR $6\mathrm{.}25$ mil at the maturity.

b$.$

The Australian company would pay the interest of AUD $0\mathrm{.}25$ mil semiannually, and pay AUD $10$ mil at the maturity.

c$.$

The Australian company would pay the interest of EUR $0\mathrm{.}5$ mil semiannually, and pay AUD $10$ mil at the maturity.

d$.$

The Australian company would pay the interest of EUR $0\mathrm{.}25$ mil semiannually, and pay EUR $6\mathrm{.}25$ mil at the maturity.