Question
You own a chain of US jewelry stores that purchases large amounts of silver from Mexican suppliers who expect payment in pesos. Each year, you
You own a chain of US jewelry stores that purchases large amounts of silver from Mexican suppliers who expect payment in pesos. Each year, you spend MXN 538 M on silver. You want to use a currency swap to completely eliminate your exposure to exchange rate risk on these transactions. The notional is in Mexican pesos. The fixed leg of this swap would pay out based on an exchange rate of MXN 19 per USD, and the variable leg would pay out based on the spot rate. What exchange rate would you be locking in using this swap? Pleas express it in terms of USD per MXN
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