Problem: In the Kodak Australian dollar swap example, suppose Merrill Lynch had been able to arrange a forward contract for the A $70 million at a rate of A $1 = U.S.$0.49.
Q1. If Merrill Lynch retained full benefits from the better forward rate, what would have been the present value of its profit on the deal?
Q2. If Merrill Lynch had passed these savings on to Kodak, what would have been Kodak's annualized all-in rate on the swap? (Hint: Take the internal rate of return on all of Kodak's cash flows.)
Q3. Suppose the interest rate swap with Australian bank B had been at LIBOR - 20 basis points. If Merrill Lynch passed this higher cost along to Kodak, what would Kodak's all-in cost have been?