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The Swap Position 21 months (1.75 years) ago, your institution entered into a three-year cross-currency interest rate swap with an Australian travel company. The swap
The Swap Position 21 months (1.75 years) ago, your institution entered into a three-year cross-currency interest rate swap with an Australian travel company. The swap agreement was over-the-counter with the following terms: your institution is to pay 3.42% per annum (with semi-annual compounding) in AUD and receive 6-month LIBOR +0.75% per annum in CAD. Payments are semi-annual and on a notional principal of AUD30 million. The 6-month LIBOR rate and the spot exchange rate at various dates over the last 21 months are shown in the table below: Date of observation t = 0 (contract initiation) t = 6 months t = 12 months t = 18 months t = 21 months (today) 6-month LIBOR rate observed 2.68% 2.07% 1.21% 0.32% 0.25% Spot exchange rate observed (AUD for 1 CAD) 1.0610 1.1049 1.1401 1.0509 1.0221 (a) Compute the cash flow paid and received by your financial institution on each payment date of the swap (i.e., at t = 0, 6, 12, and 18 months)
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