Consider a 3-year currency swap with a notional principal of AUD100,000, whereby A receives annual payments in Australian dollars and B receives annual payments in U.S. dollars at a contracted rate of 0.9300 (USD/AUD). The market exchange (USD/AUD) rate assumes the values 0.9500, 0.9300 and 0.8900 at the end of each year. Calculate the cash flows in year two.
A) B pays A USD2,000
B) A pays B USD2,000
C) no net payment is required
D) none of the given answers

Question

Quizplus · Accepted Answer

In year two, the contracted rate (0.9300) matches the market rate (0.9300), so no net payment is required.

Consider a 3-Year Currency Swap with a Notional Principal of AUD100,000