Your company has been doing business for some time in Australia under a subsidiary. Your company has decided that it wants to bring over a large amount of the firms Australian profits. The firm has decided for the next 15 months to convert AUD into USD each month. As a result, you are looking into entering a swap to receive USD and pay AUD. Assume the notional principle on the transaction is USD 200,000,000 and the current spot rate is 0.6707 USD / 1 AUD. The current rates below are per annum with continuous compounding.

Months USA Australia

1 4.65% 3.35%

2 4.75% 3.35%

3 4.90% 3.35%

4 4.90% 3.40%

5 5.00% 3.40%

6 5.00% 3.40%

7 4.90% 3.50%

8 4.90% 3.50%

9 4.90% 3.50%

10 4.90% 3.50%

11 4.75% 3.50%

12 4.75% 3.70%

13 4.75% 3.70%

14 4.75% 3.70%

15 4.75% 3.70%

A) What is the fixed rate for USD and AUD in this problem?

B) What are the USD cash flows and the AUD cash flows each month?

C) 8 months have now passed and the new rates are listed below. The current exchange rate is also 0.7075 USD / 1 AUD. What is your current position worth now?

Months USA Australia

1 5.00% 3.75%

2 5.00% 3.75%

3 4.75% 3.75%

4 4.75% 3.75%

5 4.75% 3.50%

6 4.50% 3.50%

7 4.50% 3.50%