A Five-Year Currency Swap Involves Two AAA Borrowers and Has

question 25

Essay

A five-year currency swap involves two AAA borrowers and has been set at current market interest rates. The swap is for US$100 million against AUD 200 million at the current spot exchange rate of AUD/$ 2.00. The interest rates are 4% in U.S. dollars and 7% in Australian dollars, or annual swaps of $4 million for AUD 14 million. A year later, the interest rates have dropped to 3% in U.S. dollars and 6% in Australian dollars, and the exchange rate is now AUD/$ 1.9.
a. What should the market value of the swap be in the secondary market?
Assume now that the swap is instead a currency-interest rate swap whereby the dollar interest is set at LIBOR.
b. What would the market value of the currency-interest rate swap be if these conditions prevailed a year later?

Understand the structure and utility of legal citations in case law research.

Learn about West’s key-number system and its application in legal research.

Know how to brief a case and the usefulness of this skill in legal practice.

Familiarize with the rules of construction, binding and persuasive authority, and administrative regulations in legal research.

---

Definitions:

Franchise Relationships

Legal and commercial bonds formed between a franchisor and franchisee, where the franchisor licenses its trade name and operations model to the franchisee.

Federal Trade Commission's Franchise Rule

A regulation established by the FTC that requires franchisors to provide all potential franchisees with a disclosure document containing important information about the franchise.

Material Facts

Important information that could influence decisions or outcomes in legal, financial, or other professional contexts.

Federal Antitrust Laws

Laws created by the federal government to promote competition among businesses and prevent monopolies or unfair business practices that harm consumers.