One of the main risks eliminated with Cross-Currency Swaps once compared to back-to-back loans is
A) interest rate risk because the swap dealer locks the interest rates.
B) counterparty risk because the intermediary serves as a guarantor.
C) balance sheet risk since the swap is reported on the balance sheet as liability.
D) all of the above

Question

Quizplus · Accepted Answer

Cross-Currency Swaps eliminate counterparty risk because the intermediary serves as a guarantor. Back-to-back loans have two counterparties with direct exposure to each other, which increases the risk if one party defaults. Cross-Currency Swaps also eliminate interest rate risk because the swap dealer locks the interest rates, but this risk is not specific to back-to-back loans and can also be managed through other financial instruments. Balance sheet risk is not eliminated with Cross-Currency Swaps, as the swap is reported on the balance sheet as a liability.

One of the Main Risks Eliminated with Cross-Currency Swaps Once