Explanation:
Let's calculate the quarterly interest amount that Firm A pays to Firm B:
Given Data:
$50 million from Firm A.Step 1: Calculate the annual interest payment in JPY.
Annual Interest Payment (JPY) = 0.04 × 100,000,000 = ¥4,000,000
Step 2: Convert the annual interest payment to a quarterly interest payment.
Quarterly Interest Payment (JPY) =
Step 3: Understanding the interest payment from A to B:
Firm A pays interest in JPY to Firm B, as they have borrowed ¥100 million. The quarterly interest payment by Firm A to Firm B is therefore ¥1,000,000.
Final Answer:
The quarterly interest amount that Firm A pays to Firm B is ¥1,000,000.
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Q.4187 Assume that a U.S. firm A wants to acquire Japanese yen while a Japanese firm, B, is aiming to borrow U.S. dollars (USD). Suppose that A wants to borrow ¥100 million. The Japanese firm needs $50 million. The two firms enter a USD/JPY swap with an exchange rate of 2. Calculate the quarterly interest amount that A pays to B, given that A pays 4% on ¥100 million annually, and the interest rates remain unchanged.
A
¥250,000
B
¥500,000
C
¥1,000,000
D
¥1,500,000
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