Which one of the following is a major reason for firms to engage in currency swaps?
A) They will be required to repay only the interest.
B) They can obtain more favorable borrowing terms in a different currency.
C) The debt will not show on their balance sheets.
D)Borrowing in a foreign currency offers lucrative tax breaks.

Question

Quizplus · Accepted Answer

Currency swaps allow firms to obtain more favorable borrowing terms in a different currency, which can help them reduce borrowing costs or take advantage of temporary opportunities for lower interest rates. Other reasons for engaging in currency swaps may include managing currency risk exposure and accessing foreign capital markets. However, the options C and D are incorrect as debt from currency swaps will show up on the balance sheet, and tax breaks may be available but are not a primary reason for engaging in currency swaps. Option A is not applicable to currency swaps as they involve exchanging principal amounts, not just interest payments.

Which One of the Following Is a Major Reason for Firms