Currency swaps, whereby two parties exchange currencies at a specified point in time for a specified price, are often used by MNCs to hedge against interest rate risk.

Question

Quizplus · Accepted Answer

Currency swaps are primarily used to hedge against currency risk, not interest rate risk, by exchanging principal and interest in different currencies between parties. Interest rate swaps, on the other hand, are used to hedge against interest rate risk by exchanging interest payments in the same or different currencies.

Currency Swaps, Whereby Two Parties Exchange Currencies at a Specified