What is the value of the swap

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Reference no: EM131241286

LIBOR zero rates are flat at 5% in the United States and flat at 10% in Australia (both annually compounded). In a 4-year swap Australian LIBOR is received and 9% is paid with both being applied to a USD principal of $10 million.

Payments are exchanged annually. The volatility of all 1-year forward rates in Australia is estimated to be 25%, the volatility of the forward USD/AUD exchange rate (AUD per USD) is 15% for all maturities, and the correlation between the two is 0.3. What is the value of the swap?

Reference no: EM131241286

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