In an interest-only currency swap
A)the counterparties must raise the actual notational principal in their home markets; then exchange it for the foreign currency they desire. The must also hedge with forward contracts on the currency.
B)the counterparties periodically exchange the amortized portions of the notational principals.
C)both a and b
D)none of the above

Question

Quizplus · Accepted Answer

In an interest-only currency swap, the counterparties do not exchange amortized portions of the notational principal. Instead, they agree to exchange interest payments based on a notational principal that remains constant throughout the life of the swap. Therefore, option B is incorrect. Option A is correct because the counterparties must raise the actual notational principal in their home markets, exchange it for the foreign currency they desire, and then hedge with forward contracts on the currency.

In an Interest-Only Currency Swap