Question
An Australian company requires USD but does not have access to direct USD borrowing or finds it prohibitively expensive. The company decides to borrow in
An Australian company requires USD but does not have access to direct USD borrowing or finds it prohibitively expensive. The company decides to borrow in Australian dollar at 90-day BBSW and enter a cross-currency basis swap to USD based on 90-day USD LIBOR (a floating-for-floating swap). The swap has a tenor of two years with quarterly settlement. The principal on the Australian dollar loan is AUD50 million and the exchange rate at initiation of the swap is AUD 1 = 0.7231 USD. Show using diagrams the swap at initiation, the quarterly interest payment, and the swap at maturity
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