Question
Q8. Given the following information, please estimate the price of the currency swap. An US firm agrees to sells a Yen Bond at 4% to
Q8.
- Given the following information, please estimate the price of the currency swap.
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.
- 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?
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