Consider the following cross-currency swap: X pays 5% on AUD 100m to Y annually over five years. Y pays 4% on USD 75m to X annually over five years. Notionals are exchanged and the spot rate at initiation is S(USD/AUD) = 0.75. The swap rates at initiation are equal to current market yields such that the value of the swap at initiation is zero. Suppose one year after the swap contract is initiated, the market yield for AUD debt of comparable risk has risen by 1 percentage point, while the market yield for USD of comparable risk has fallen by 1 percentage point. Suppose further that the spot rate has risen to S(USD/AUD) = 0.80. B3 (a) (7 marks) Calculate the new value of the swap in AUD to the AUD payer. Show your working. B3 (b) (3 marks) Which party would be required to compensate the other in order to terminate the swap? Briefly explain your answer. Consider the following cross-currency swap: X pays 5% on AUD 100m to Y annually over five years. Y pays 4% on USD 75m to X annually over five years. Notionals are exchanged and the spot rate at initiation is S(USD/AUD) = 0.75. The swap rates at initiation are equal to current market yields such that the value of the swap at initiation is zero. Suppose one year after the swap contract is initiated, the market yield for AUD debt of comparable risk has risen by 1 percentage point, while the market yield for USD of comparable risk has fallen by 1 percentage point. Suppose further that the spot rate has risen to S(USD/AUD) = 0.80. B3 (a) (7 marks) Calculate the new value of the swap in AUD to the AUD payer. Show your working. B3 (b) (3 marks) Which party would be required to compensate the other in order to terminate the swap? Briefly explain your