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Category > Business & Finance Posted 06 Aug 2017 My Price 7.00

Suppose that the term

Suppose that the term structure of interest rates is flat in the United States and Australia.The USD interest rate is 7% per annum and the AUD rate is 9% per annum. The currentvalue of the AUD is 0.62 USD. Under the terms of a swap agreement, a financialinstitution pays 8% per annum in AUD and receives 4% per annum in USD. Theprincipals in the two currencies are $12 million USD and 20 million AUD. Paymentsare exchanged every year, with one exchange having just taken place. The swap will last2 more years. What is the value of the swap to the financial institution? Assume allinterest rates are continuously compounded.

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Status NEW Posted 06 Aug 2017 07:08 PM My Price 7.00

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