A ________________________ is a financial innovation used to hedge exchange rate risk over a long time whereby one party agrees to trade periodic payments in a given currency with another party who agrees to do the same in a different currency.
A)interest rate swap agreement
B)collateralized mortgage obligation
C)securitization
D)currency swap agreement

Question

Quizplus · Accepted Answer

This type of financial innovation is called a currency swap agreement. It involves exchanging periodic payments in different currencies as a means of mitigating exchange rate risk over a long time. Option A, interest rate swap agreement, involves the exchange of different interest payments, not currencies. Option B, collateralized mortgage obligation, involves selling bundles of mortgages as securities. Option C, securitization, involves the pooling of various types of debt and creating securities that are backed by them.

A ________________________ Is a Financial Innovation Used to Hedge Exchange