As a foreign exchange hedge, currency swaps have all of the following characteristics EXCEPT
A) principal amounts are reversed at the spot rate at maturity.
B) principal amounts are reversed at a pre- agreed rate at maturity.
C) an initial exchange by two parties of two principal amounts in two different currencies.
D) each party pays the other's interest payment.

Question

Quizplus · Accepted Answer

Currency swaps typically involve the exchange of principal and interest in different currencies between two parties, but the principal amounts are usually reversed at maturity at a pre-agreed rate (not at the spot rate). This allows both parties to know their obligations and entitlements, reducing exposure to exchange rate fluctuations.

As a Foreign Exchange Hedge, Currency Swaps Have All of the Following