Question
You have entered into a currency swap in which you received 4%pa in yen and pay 6% pa in dollars once a year. The principals
You have entered into a currency swap in which you received 4%pa in yen and pay 6% pa in dollars once a year. The principals are1,000 million yen and 10 million dollars. The swap will last foranother 2 years, and the current exchange rate 115 yen/$. Theannualized spot interest rates (with continuous compounding) are2.00% and 2.50% in yen for 1- and 2-year maturities, and 4.5% and4.75% in dollars. What is the value of the swap to you in milliondollars?
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