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Q 4 . Suppose that a firm entered several years ago into a cross - currency swap where it is paying 8 % per annum
Q Suppose that a firm entered several years ago into a crosscurrency swap where it is paying per
annum in Australian dollars AUD and receiving per annum in US dollars USD The principals in
the two currencies are AUD million and USD million. Payments are exchanged every year, with
one having just taken place. The swap will last more years. At present, the USD interest rates are for
all maturities and the AUD rates are for all maturities both with continuous compounding The
current exchange rate is AUD USD
a What is the current value of the swap in USD million for the company?
b What AUD foreign exchange rate would make the swap have zero value keeping interest rates at
current values What USD interest rates would make the swap have zero value keeping constant
both the AUD interest and foreign exchange rates
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