An US firm agrees to sells a Yen Bond at 4% to a Japanese firm and purchases

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An US firm agrees to sells a Yen Bond at 4% to a Japanese firm and purchases an USD bond at 8% from the Japanese firm.

Yen interest rate: 1% (continuous compounded)

USD interest rate: 2% (continuous compounded)

Yield curve is flat

Notional principal:

$10 million

Yen 1,200 million

USD/Yen: 118 in Yen (or 1/118 in USD)

Term: 5 years.

a.Given the following information, please estimate the price of the currency swap.

If the US firm would like to receive $1 million upfront in the swap, what should be the coupon rate on the Japanese Yen bond?

Related Book For answer-question

Calculus Of A Single Variable

ISBN: 9781337275361

11th Edition

Authors: Ron Larson, Bruce H. Edwards

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Posted Date: Mar 31, 2024 03:39 AM

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An US firm agrees to sells a Yen Bond at 4% to a Japanese firm and purchases

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Cash flows for the currency swap US firm receives Yen at 4 fixed rate US firm pays USD at 8 fixed ra... View the full answer

Calculus Of A Single Variable

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