(2) Answer the NPV from the “Currency Coupon Swap” deal in the reference. *Refer
ID: 2620966 • Letter: #
Question
(2) Answer the NPV from the “Currency Coupon Swap” deal in the reference.
*Reference
Market
Exchange rate?USD??JPY140.00
?USD market interest rate?10% p.a. during the period
JPY market interest rate: 6% p.a. during the period.
Swap contract:
Assumed principle amount?USD 100 million (JPY 14,000 million)
Swap period (tenor): 2 years
Pay?6.3% in USD currency at the end of each year.
Receive: 6% in JPY currency at the end of each year
Answer the NPV. Finally you value the JPY amount by the exchange rate of USD1=JPY140.00, answer the NPV in USD currency.
Explanation / Answer
Answer to this question Exchange rate= 1 USD = JPY140.00 USD market interest rate=10% p.a. during the period JPY market interest rate = 6% p.a. during the period. Swap contract: Assumed principle amount USD 100 million (JPY 14,000 million) Swap period (tenor): 2 years Pay: 6.3% in USD currency at the end of each year. Receive: 6% in JPY currency at the end of each year Answer the NPV. Finally you value the JPY amount by the exchange rate of USD1=JPY140.00, answer the NPV in USD currency. calculation of amount paid in USD CURRENCY AT THE 6.3% YEAR RATE PRINCIPAL AMOUNT(IN $ MILLION) AMOUNT PAID( IN $ MILLION) P.V.F @10% PRESENT VALUE( IN $ MILLION 1 6.30% 100 6.3 0.9091 5.72733 2 6.30% 100 6.3 0.8264 5.20632 TOTAL 10.93365 calculation of amount receive in JPY CURRENCY AT THE 6.0% YEAR RATE PRINCIPAL AMOUNT(IN JPY MILLION) AMOUNT PAID( IN JPY MILLION) P.V.F @6% PRESENT VALUE( IN JPY MILLION) PRESENT VALUE IN USD(IN $ MILLION) 1 6.00% 14000 840 0.9433 792.372 5.6598 I USD= JPY 140 2 6.00% 14000 840 0.8899 747.516 5.3394 TOTAL 10.9992 CALCULATION OF NPV IN USD CURRENY AMOUNT RECEIVED AS INTEREST-AMOUNT PAID AS INTEREST = 10.9992-10.93365 = 0.06555 OR $65550 NPV FOR THE USD CURRENCY IN $65550 (APPROX)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.