1 2. Suppose a Brazilian firm would like to issue a five year $50 million 4% coupon bond. The current exchange rate is 2

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1 2 Suppose A Brazilian Firm Would Like To Issue A Five Year 50 Million 4 Coupon Bond The Current Exchange Rate Is 2 1 (168.74 KiB) Viewed 95 times

1 2. Suppose a Brazilian firm would like to issue a five year $50 million 4% coupon bond. The current exchange rate is 2.7 reals/$, the US risk free rate is 2% and the Brazilian risk free rate is 22%. Assume that interest rates will not change over the next five years. In order to hedge the risk associated with the dollar cash flows, the firm decides to enter into a currency swap. The counterparty will make the firms dollar coupon and principle payments and the firm will make a real payment of C, in years 1 through 4 and in the fifth year make a payment of C+P. If the P = 345 million reals, what should C be? a