Fixed-for-floating - help!

CFA Level II Portfolio Management
#1

Appreciate if someone can walk me through the problem statement below. I am getting confused on who will give the fixed payments and who will receive the fixed payments. - does the party that has CAD curreny exposure have fixed-rate liability i.e. receives fixed pmts and wants to swap for floating? if so, then why will they receive a fixed rate based on yield curve in Canda?

Thanks

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The Current USD($) to CAD exchange ratio is 0.7. In a $1mm fixed-for-floating currency swap, the party that is entering the swap to hedge existing exposure to a CAD denominated fixed-rate liablity will

  • receive a fixed rate based on the yield curve in Canada…
#2

The guy as a CAD denominated fixed-rate LIABILITY so it must give money based on a fixed rate.

Since he wants to hedge those payments, he wants to receive a fixe rate.

In a way, he will pay the fixed rate liability with the fixed rate receive.