US investor enters into cross currency swap to exchange usd for euros to purchase Italian bonds.
Assume demand for US dollars is strong relative to demand for euros, so there is a positive basis for “lending” US dollars. By hedging the position in Italian government bonds with the currency basis swap, the Us investor will most likely increase the periodic net interest payments received from the swap counterparty in:
A) euros only.
B) US dollars only.
C) both euros and US dollars.
If basis is only adjusted to non usd leg, shouldn’t the answer be A here?