. New Zealand Company WoolSmith is buying an Australian ranch and wants to borrow 30M in the AUD fixed interest rate market to pay for it over three years. Australian Company TinCo is buying a New Zealand mine for 37.5M NZDs and wants to borrow this amount in the NZD fixed rate market for three years. The spot exchange rate is .80 AUDs per NZD (or 1.25 NZDs per AUD). The borrowing terms confronted by each company are below. Each company wants to borrow for three years. The terms would be the fixed interest rate payment on the first and second annual anniversaries of the loan then the principal plus final interest payment at the end of year three.

	3-year Fixed Rate NZDs	3-year Fixed Rate AUDs
WoolSmith	7%	9%
TinCo	10%	10.5%

You are a swap specialist at an Australian I-Bank. Can you work out a swap agreement between these two companies that will benefit them both? Show your work. The interbank interest rates are currently available to the I-bank

Interbank Borrowing Rates
	NZDs	AUDs
1 year	5%	6%
2 year	5%	6%
3 year	5%	6%