Currency Swap

Currency Swap Terms Company A Pays 6% Fixed Rate U.S. $'s Company B Pays 5% Fixed Rate ¥ Payments: Annual Notional Principal: $10,000,000 / ¥1,200,000,000 a. To gain exposure to foreign equity returns. b. To obtain fixed rate financing. c. To hedge its floating rate debt. d. To gain exposure to a foreign currency. - Dinesh S

Assuming the question is what is the best reason to enter into this arrangement, I will go with c. as the annual payments seem to make think this is a hedging position. It’s a guess though

I choose D. The example in the CFAI book is about gaining exposure to a foreign currency.

not clear what is being asked… but, its a currency swap so a, b & C don’t make sense to me, If I want to hedge my floating or fixed rate debt, I would go with USD swaps. I will go with D

Perfect, D is the right answer, since they SWAP being talked off here is a CURRENCY-SWAP, so none of the A, B, C options make any sense… Initially, I assumed C to be the ans, but when I re-read the terms given and I happen to come across the word ‘currency’ and Bingo!! 1st 3 options go for a toss… left with just D - Dinesh S

Also, both firms are paying fixed. Can’t be C.