Question 4 : Currency Swaps ( 2 / 1 0 ) Suppose, to build the Guangzhou campus,
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Question : Currency Swaps Suppose, to build the Guangzhou campus, HKUST has issued a year Chinese Yuan CNY bond with a par value of M CNY and a yearly coupon rate. HKUST wants to lock in payments in terms of Hong Kong Dollars HKD Right now, the exchange rate is S HKD CNY The CNYdominated interest rate is and the HKDdominated interest rate is both annual, continuously compounding
i How does the bond require HKUST to pay back in terms of CNY
ii If HKUST uses fairly priced currency forwards, what are their payments each year in terms of HKD
iii Suppose a swap contract allows HKUST to swap the payments of the year CNY bond to payments of a year HKD bond with a par value of $M and a yearly coupon rate, what are the payments each year in terms of HKD
iv Would you prefer to take ii or iii
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