Selling options to resolve carry trade dilemma

BACKGROUND: Companies with long-term liabilities are always on the lookout for ways to lower their cost of funding. Many of them put on carry trades, which are a play on the interest rate differential between two currencies. Typically, users go long a high-yield currency and short a lower-yield currency, taking on principal risk at maturity.

Many clients who have US dollar loans use cross-currency swaps to lower their borrowing cost by synthetically swapping into a yen loan. The swap has an

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