) 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