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.

Answer 1

					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)