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

Question

Quizplus · Accepted Answer

All of the given features are characteristic of cross-currency swaps except for the fact that the principal amounts are not reversed at the spot rate at maturity. Instead, they are reversed at a pre-specified rate agreed upon at the initiation of the swap. This pre-specified rate is designed to hedge against potential fluctuations in exchange rates, which is why cross-currency swaps are used as a foreign exchange hedge.

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