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2. Cross-Currency Swap (s points) Today is December 11, 2023. The annualized Brazilian real (BRL) interest rate is 11% for six montis. while the ammalized
2. Cross-Currency Swap (s points) Today is December 11, 2023. The annualized Brazilian real (BRL) interest rate is 11% for six montis. while the ammalized USD interest rate is 3% for six months. Festiva Co., a U.S, firm, entered into a cros-currency swap with a swap dealer, where Festiva pays 4% semi-annually in USD and receives 1296 semi-amually in BRL. The principals in the two currencies are USD 8 million and BRL.40 million. The swap will last for another two years. The BRLUSD exchange rate is 0.2 . For simplicity, assume the term structure in Brazil and in the U.S. is flat. Questions: a. Draw a diagram showing the semi-annual swap oush fows (in BRL. and in USD). (2 points) b. Value this cross-currency swap in USD for Festiva Co. ( 3 points) c. Suppose the USD appreciates against the BRL. Without doing any calculations, does the value of the swap increase or decrease for Festiva Co.? (1 point)
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