"pay" the IR differential

CFA Level III Derivatives
#1

Hi Brave Ones,

VOLUME 5 CFAI R35 P323 - EXERCISE 5

What do they mean by “pay the IR differential” to hedge currency risk?

(Level III 2012 Volume 5 p. 323+327).

Many thanks once again.

cheers

#2

check last few posts on this page:

http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91308703

#3

Thanks janakisri. I checked the last post but I was confused with rahuls’ explanation…(I’ve just commented on that post)

#4

american investor’s point of view: id - if < 0. So he pays it.

UK investor => id - if > 0 - so he receives it.

#5

tigas

confusion as in?

If it is regrading payin/receiving the int rate, cpk has cleared it…

RS

#6

yes, it’s cleared.

thank you all guys. you’re undoubtedly my true support in this long journey.