) BY ENGAGING IN A CURRENCY SWAP, VIEWMONT CAN ENSURE THAT QUARTERLY EARNINGS REPATRIATED FROM BRAZIL ARE CLOSEST TO
6.) By engaging in a currency swap, Viewmont can ensure that quarterly earnings
repatriated from Brazil are closest to:
A.
USD2,906,976.
B.
USD4,844,961.
C.
USD1,744,186.
Answer = C
Implied notional BRL principal = BRL5,000,000/(0.05/4) = BRL400,000,000
Equivalent notional USD principal = BRL400,000,000/1.72 = USD232,558,139.53
Implied USD interest payment = USD232,558,139.53 x (0.03/4) = USD1,744,186.05
2014 CFA Level III
“Risk Management Applications of Swap Strategies,” by Don M. Chance