Assume that continuously compounded risk-free interest rates for 1 year, 2 year, and 3 year investments in Japan are 3.6%, 3.9%, and 4.1% per annum. Also assume that continuously compounded risk-free interest rates for 1-year, 2-year, and 3-year investments in the United States are 2.8%, 3.2%, and 3.5% per annum. A financial institution has entered into a currency swap in which it receives 4.5% per annum in yen and pays 3.9% per annum in dollars once a year. The principals in the two currencies are $50 million and 6,000 million yen. The swap will last for another three years, and the current exchange rate is 115 yen per dollar.

What is the yen cash flow at time 2 (In ¥ Millions)?

Answer rating: 100% (QA)

Interest In Japan In 2nd Year principal Borrow in Yen2nd year Interest rate in Japan 600039 234 Mi... View the full answer