An Australian exporter has a retail operation in the USA and they want to swap the...
An Australian exporter has a retail operation in the USA and they want to swap the US dollars into Australia dollars. The exporter would like to swap USD1,000,000 over 3 years and has agreed to make annual interest payments at the fixed rate of 5.5%. They have also agreed to receive an equivalent Australian dollar amount over 3 years at the fixed annual interest payment of 4%. The spot exchange rate is AUD1.36/USD.
- Calculate the US dollar cash flows and final payments.
- Calculate the Australian dollar cash flows and the final receipts from this arrangement.
Homework Answers
Annual cash flows = $interest rate * notional principal in =$1000000 * .055 =$55000
Equivalent AUD amount = $55000 * 1.36 = $74800
Annual AUD payments = AUD 74800 * .04 = AUD 2992
There will not be sny exchange of principals as the swap was entered at nominal amount.
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