Nintendo has signed a 6-year currency swap contract with DZ Bank. The notional principals are 100 million for euros and 10 billion for yens. At the inception date of the swap, Nintendo receives the notional principal in euros and pays the notional principal in yens to DZ Bank. Every year thereafter but prior to maturity, the swap agreement calls for Nintendo to pay  to DZ Bank (at an annual interest rate of 8% of the notional principal in euros) and in return, to receive  from DZ Bank (at an annual interest rate of 7% of the notional principal in yens).At maturity date, the counterparties exchange both the last interest payments and the notional principals.

(a) (2 points) What is the contractual exchange rate between the counterparties during each year prior to maturity, when measured in /?

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(b) (2 points) What is the contractual exchange rate between the counterparties at the maturity date, when measured in /?

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(c) (2 points) If Nintendo enters into this swap contract for the purpose of speculation, is the company betting on the euro to appreciate or depreciate relative to the yen after the inception of the swap?

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