Financial Risk Manager Part 1
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A currency derivatives trader at a hedge fund is describing the mechanics of currency swaps to a group of junior analysts. The trader uses an example of a fixed-for-fixed USD for CNY currency swap with the following terms:
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Notional amount in USD: USD 10 million
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Notional amount in CNY: CNY 65 million
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Interest rate in USD: 1.0%
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Interest rate in CNY: 2.5%
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Time to maturity: 4 years
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Frequency of interest payments: Annual
Assuming the hedge fund receives interest in CNY, which of the following conclusions would the analysts find to be most likely correct?
A currency derivatives trader at a hedge fund is describing the mechanics of currency swaps to a group of junior analysts. The trader uses an example of a fixed-for-fixed USD for CNY currency swap with the following terms:
-
Notional amount in USD: USD 10 million
-
Notional amount in CNY: CNY 65 million
-
Interest rate in USD: 1.0%
-
Interest rate in CNY: 2.5%
-
Time to maturity: 4 years
-
Frequency of interest payments: Annual
Assuming the hedge fund receives interest in CNY, which of the following conclusions would the analysts find to be most likely correct?
Real Exam
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LLeetQuiz
A
Interest payments will be exchanged periodically for the duration of the swap, but the notional amounts will not be exchanged.
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