Suppose that the term structure of interest rates is flat in both Japan and the United States. The Japanese rate is 5% p
Posted: Thu May 05, 2022 8:26 am
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?
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?