McDonald$$s Corporation has investments in over $100$ countries

The company considers its equity investment in foreign affiliates capital which is at risk, subject to hedging depending on the individual country, currency, and market.

McDonald$$s parent company has three different pound$-$denominated exposures arising from its ownership and operation of its British subsidiary

First, the British subsidiary has equity capital which is a pound$-$denominated asset of the parent company.

Secondly, in addition to the equity capital invested in the British affiliate, the parent company provides intra$-$company debt in the form of a $4-$year $125$ million loan. The loan is denominated in British pounds and carries a fixed $5\mathrm{.}30\%$ per annum interest payment.

Third, the British subsidiary pays a fixed percentage of gross sales in royalties to the parent company. This too is pound$-$denominated. The three different exposures sum to a significant exposure problem for McDonald$$s$.$

The company has been hedging the pound exposure by entering into a cross$-$currency U$.$S$.$ dollar$/$British pound sterling swap Cross$-$Currency Swap: Pay Pounds $$ Receive Dollars

The current swap is a $7-$year swap to receive dollars and pay pounds.

Like all cross$-$currency swaps, the agreement requires McDonald$$s$-$U$.$S$.$ to make regular pound$-$denominated interest payments and a bullet principal repayment $($notional principal$)$ at the end of the swap agreement.

McDonald$$s considers the large notional principal payment a hedge against the equity investment in its British affiliate.

Anka Gopi is both the Manager for Financial Markets$/$Treasury

She wishes to consider the impact of FAS #$133$ on the hedging strategy currently employed.

Under FAS #$133,$ the firm will have to mark$-$to$-$market the entire cross$-$currency swap position, including principal, and carry this to other comprehensive income $($OCI$).$

OCI, however, is actually a form of income required under U$.$S$.$ GAAP and reported in the footnotes to the financial statements, but not the income measure used in reported earnings per share.

Although McDonald$$s has been carrying the interest payments on the swap to income, it has not previously had to carry the present value of the swap principal to OCI.

In Anka Gopi$$s eyes, this poses a substantial material risk to OCI. How does the cross currency swap effectively hedge the three primary exposures McDonalds has relative to its British subsidiary?

How does the cross$-$currency swap hedge the long$-$term equity exposure in the foreign subsidiary?

Should Anka $$ and McDonalds $$ worry about OCI? i need you to write this as a report.