Given market(Mid):

1- USD Swap market (fixed for float). Float leg pays 3MLibor quarterly, act360. Fixed Leg pays annually, act360. Market is trading mid at 1.125%.

2- TIIE market. Fixed for float Swap. Float leg pays TIIE4W every 4weeks, act360. Fixed leg pays annually, act360. Market is trading mid at 4.25

3- 3MLibor vs 12MLibor USD basis swap. 3ML quarterly, act360 is exchanged for 12MLibor+S, annual, act360. The market for the spread is at mid -0.625%

4- XC Basis swap. 4WTIIE, paid every 4weeks vs 12MLibor+S. The spread S market is 1.

5- Spot FX, MXNUSD trading at 0.0505, Settlement T+0.

Q :You sell USDMXN 1Y fwd at mid: lay out the transactions needed to hedge the 1Y USDMXN fwd showing direction, tenor

Assuming you can borrow/lend at 3MLibor

How to approach this problem?

  • $\begingroup$ Net = 12ML + 1 - (12ML - 0.625) + 3ML -3ML + 1.125 - 4.25MXN - TIIE4W + 4WTIIE Is this correct? $\endgroup$
    – Riser
    Nov 12 '14 at 0:53
  • $\begingroup$ I think for point 4, you mean vs 1MLibor+S? And the spread is somewhere near 1%. $\endgroup$
    – Phil H
    Nov 20 '14 at 13:37

You can make the use of 1 and 2 to calculate forward price


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