In a currency swap
A)it may be the case that two counterparties have equivalent credit ratings.
B)it may be the case that firms have a comparative advantage in borrowing in their domestic markets.
C)both a and b
D)none of the above

Question

Quizplus · Accepted Answer

Both option A and B are valid considerations in a currency swap. Counterparties with equivalent credit ratings may be more willing to engage in a currency swap because it reduces the risk of default. Additionally, firms may have a comparative advantage in borrowing in their domestic markets due to factors such as regulations, familiarity with the market, and relationships with local lenders. Both of these considerations make a currency swap a potentially attractive option for firms looking to manage their foreign exchange exposure.

In a Currency Swap