Estimating the value of the swap


You have entered into a currency swap in which you receive 4%pa in yen and pay 6%pa in dollars once a year. The principals are 1,000 million yen and 10 million dollars. The swap will last for another two years, and the current exchange rate is 115 yen/$. The annualized spot rates (with continuous compounding) are 2.00% and 2.50% in yen for one- and two year maturities, and 4.50% and 4.75% in dollars. What is the value of the swap to you in million dollars?

A. -1.270

B. -0.447

C. 0.447

D. 1.270

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Finance Basics: Estimating the value of the swap
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