Assume the current exchange rate is 110 yen per dollar a, Ask an Expert

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Assume the current exchange rate is 110 yen per dollar. A swap contract have a maturity of 3 years. Company Lufthansa Black Ltd will use swap currency contract to receive yen and pay in dollars. Note the principle amounts are $10 million and 1,200 million yen. All Japanese LIBOR/swap rates are 4% and all USD LIBOR/swap rates are 9%. The interest rate in Yen and dollar is 5% and 8% respectively.

Required: Using the above information show that the value of a swap in terms of bond equates the forward contract present value.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92384301

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