Question
WBC entered a swap agreement with Commerzbank. In this swap contract, WBC receives 9% per annum in AUD and pays 6% per annum in Euro.
WBC entered a swap agreement with Commerzbank. In this swap contract, WBC receives 9% per annum in AUD and pays 6% per annum in Euro. The principals are 100 million AUD and 60 million Euro, respectively. For all maturities, the AUD interest rate is 8% per annum, and the Euro interest rate is 6% per annum. Assume all interest rates are continuously compounded. One AUD is currently worth 0.62 Euro. Payments are exchanged every year, with one exchange having just taken place. The swap will last two more years. What is the value of the swap to WBC in AUD?Show your step-by-step workings.
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