Finance Assignment | Professional Writing
Callage of Business Administration Finance Depasirent 5. [10 points] SAFCO is pursuing an aggressive growth strategy by expanding its operations in Brazil. It chose to enter into a currency swap to hedge its foreign currency exposure. Under the terms of the swap agreement, SAFCO pays 7.5% per annum in BRL and receives 4.55% per annum in SAR. The principals in the two currencies are BRL 10 million and SAR 15 million.
The current value of BRL is 1.3141 SAR. Payments are exchanged every year, with one exchange just took place. The swap has three payments left. What is the value of the swap to SAFCO? Assume the term structure of risk-free interest rates is flat in the Saudi Arabia and Barzil (i.e. interest rates do not change with the length of the maturity), and the BRL OIS rate is 3.1% per annum and the SAR OIS rate is 2.4% per annum.
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