Suppose that the term structure of risk-free interest rates is flat in the United States and Australia. The USD interest rate is 5.9% per annum and the AUD rate is 5.7% per annum. The current value of the AUD is 0.57 USD. Under the terms of a swap agreement, a financial institution pays 2.0% per annum in AUD and receives 5.0% per annum in USD. The principals in the two currencies are $12 million USD and 20 million AUD. Payments are exchanged every year, with one exchange having just taken place. The swap will last two more years. What is the USD value of the swap to the financial institution? Assume all interest rates are continuously compounded. Enter your answer rounded to the nearest integer,

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose that the term structure of risk-free
interest rates is flat in the United States and
Australia. The USD interest rate is 5.9% per
annum and the AUD rate is 5.7% per annum. The
current value of the AUD is 0.57 USD. Under the
terms of a swap agreement, a financial institution
pays 2.0% per annum in AUD and receives 5.0%
per annum in USD. The principals in the two
currencies are $12 million USD and 20 million
AUD. Payments are exchanged every year, with
one exchange having just taken place. The swap
will last two more years. What is the USD value
of the swap to the financial institution? Assume
all interest rates are continuously compounded.
Enter your answer rounded to the nearest integer,
Transcribed Image Text:Suppose that the term structure of risk-free interest rates is flat in the United States and Australia. The USD interest rate is 5.9% per annum and the AUD rate is 5.7% per annum. The current value of the AUD is 0.57 USD. Under the terms of a swap agreement, a financial institution pays 2.0% per annum in AUD and receives 5.0% per annum in USD. The principals in the two currencies are $12 million USD and 20 million AUD. Payments are exchanged every year, with one exchange having just taken place. The swap will last two more years. What is the USD value of the swap to the financial institution? Assume all interest rates are continuously compounded. Enter your answer rounded to the nearest integer,
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