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The swap desk at Crdit Lyonnais is quoting the following rates on 5-year swaps: USD: 8.75% bid, 8.85% ask CHF: 5.25% bid, 5.35% ask. You
The swap desk at Crdit Lyonnais is quoting the following rates on 5-year swaps: USD: 8.75% bid, 8.85% ask CHF: 5.25% bid, 5.35% ask. You are an American real estate mogul. You have just purchased a chain of boutique hotels in the Swiss Alps for CHF 35,000,000. You have financed the purchase with a loan from a Swiss bank in CHF. How can you hedge your currency risk? Describe the hedge and the cashflows in detail. Assume that all payments are annual, and the current exchange rate is CHF 1/USD.
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