Financial Risk Manager Part 1
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A hedge fund's currency derivatives expert is providing an in-depth explanation of currency swaps to a group of junior analysts. To illustrate the concept, they use a fixed-for-fixed currency swap between the US dollar (USD) and the Chinese yuan (CNY) with the following specific terms:
Given that the hedge fund will be receiving interest payments in CNY, which of the following conclusions would the analysts most likely find accurate?
A
Interest payments will be exchanged periodically for the duration of the swap, but the notional amounts will not be exchanged.
B
The hedge fund will pay CNY 65 million and receive USD 10 million at the initiation of the swap.
C
The swap is structured to have a positive mark-to-market value for the hedge fund at the initiation of the swap.
D
Holding all else constant, if the CNY depreciates against the USD, the mark-to-market value of the swap will increase for the hedge fund.