24-66 When a bank enters into a fixed-floating currency swap,it is exposed to
A)both interest rate and currency exposures.
B)only interest rate exposures.
C)only exchange rate exposure.
D)zero interest rate exposure over the life of the swap.
E)zero interest rate and currency exposure over the life of the swap.

Question

Quizplus · Accepted Answer

In a fixed-floating currency swap, the bank is exposed to both interest rate and currency risk. The fixed leg of the swap is subject to interest rate risk, while the floating leg is subject to currency risk. The bank is obligated to exchange fixed payments in one currency for floating payments in another currency. Therefore, any changes in the exchange rate between the two currencies will affect the value of the swap, in addition to any changes in interest rates.

24-66 When a Bank Enters into a Fixed-Floating Currency Swap,it