An analyst gathers the following information about the GBP/EUR (amount of GBP per 1 EUR) exchange rate:

Spot exchange rate: 0.90

5-year forward exchange rate: 0.85

Entering into an at-market 5-year pay-fixed EUR, receive-fixed GBP currency swap with a notional of EUR 1,000 is equivalent to:

Exam-Like

short-selling a EUR 1,000 par value fixed-rate bond and purchasing a GBP 850 par value fixed-rate bond.

short-selling a EUR 1,000 par value fixed-rate bond and purchasing a GBP 900 par value fixed-rate bond.

purchasing a EUR 1,000 par value fixed-rate bond and short-selling a GBP 900 par value fixed-rate bond.

Chartered Financial Analyst Level 2