When two borrowers engage in a currency swap, they agree to:
A)Trade one currency for another, thus avoiding the foreign exchange market
B)Make payments on each other's borrowings in a different currency
C)Pay to each other any depreciation or appreciation of the currency
D)Exchange fixed-rate interest payments for variable-rate interest payments

Question

Quizplus · Accepted Answer

In a currency swap, the two borrowers agree to make payments on each other's borrowings in a different currency. This allows each borrower to obtain funding in their preferred currency while also managing their currency exposure. The borrowers may swap back the currencies at a later date to unwind the swap. The other choices are not accurate descriptions of a currency swap.

When Two Borrowers Engage in a Currency Swap, They Agree