Suppose a financial institution has entered into a fixed-for-fixed currency swap in which it receives 3% per annum in yen and pays 4% per annum in dollars once per year.

The principal amounts in the two currencies are $10 million dollars and 1,200 million yen, the swap will last for another 3 years, and the current exchange rate is 110 yen per dollar.

All Japanese interest rates are 1.5% per annum (continuously compounded) and USD interest rates are 2.5% per annum (continuously compounded).

Value the swap:

a) in terms of forward rates;

b) in terms of bonds