currency swap is equivalent to a
A) currency option, with the exercise price equal to the current spot rate
B) long-dated forward foreign exchange contract, where the forward rate is the current spot rate.
C) interest rate swap, where the basis is the differential between the fixed and floating interest rates
D) short-term currency futures contract

Question

Quizplus · Accepted Answer

A currency swap involves exchanging notional principal amounts of two currencies at an agreed-upon exchange rate, with an agreement to reverse the exchange at a later date. This is similar to a long-dated forward foreign exchange contract, where the forward rate is the current spot rate. The other options (A, C, and D) are not accurate descriptions of a currency swap.

Currency Swap Is Equivalent to a