Answer to Question #59780 in Financial Math for Lu

Question

Client enters into a swap agreement with Bank to exchange USD 14 million for ZAR and to buy back the USD for ZAR after 95 days. The agreed benchmark rate is USD/ZAR 14.86. The forward rate that are agreed upon is stated as R 15.31. This implies that Astro Imports will buy USD 14 million spot at the benchmark rate of R14.86 and then sell it back to Global Market Bank at their offer rate of R 15.31. Indicate the cash flows of the transactions at the swap deal date and at 95 days for both parties, as well as the net cash flow for each of them.