Suppose that the term structure of interest rates is flat in both Japan and the United...

 

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Suppose that the term structure of interest rates is flat in both Japan and the United States. The Japanese rate is 5% per annum and the US rate is 10% per annum (both with continuous compounding). Some time ago a financial institution has entered into a currency swap in which it receives 6% per annum in yen and pays 9% per annum in dollars once a year. The principals in the two currencies are $10 million and 1,000 million yen. The swap will last for another 3 years, and the current exchange rate is 120 yen=$1. What is the value of the swap? Suppose that the term structure of interest rates is flat in both Japan and the United States. The Japanese rate is 5% per annum and the US rate is 10% per annum (both with continuous compounding). Some time ago a financial institution has entered into a currency swap in which it receives 6% per annum in yen and pays 9% per annum in dollars once a year. The principals in the two currencies are $10 million and 1,000 million yen. The swap will last for another 3 years, and the current exchange rate is 120 yen=$1. What is the value of the swap?

Answer rating: 100% (QA)

To find the value of the currency swap we need to calculate the present value of the cash flows ... View the full answer