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 exchanging fixed interest rate payments in one currency for floating interest rate payments in another currency. This exposes the bank to both interest rate risk (as the floating rate payments can change over time) and currency risk (as they are receiving payments in a different currency than they are paying out). Therefore, choice A is the correct answer.

When a Bank Enters into a Fixed-Floating Currency Swap, It