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For all maturities the US dollar USD interest rate is 7% per Australian dollar AUD rate is 9% per annum The current value of the AUD is 065 USD In swap agreement a financial institution pays

For all maturities the US dollar (USD) interest rate is 7% per Australian dollar (AUD) rate is 9% per annum. The current value of the AUD is 0.65 USD. In swap agreement, a financial institution pays 10% per annum in AUD and receives 8% per annum in USD. The principles in the two currencies are $14 million and 22 million AUD 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 the financial institution. Assume all interest rates are continuously compounded.
 

Apr 29 2020 View more View Less

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