In a currency swap involving A receiving Australian dollar payments and B receiving euro payments, a rise in the actual exchange rate expressed as (EUR/AUD) implies:
A) appreciation of the euro and a loss incurred by B
B) depreciation of the euro and a loss incurred by A
C) appreciation of the Australian dollar and a loss incurred by B
D) depreciation of the Australian dollar and a loss incurred by A

Question

Quizplus · Accepted Answer

A rise in the actual exchange rate expressed as (EUR/AUD) implies that the euro has appreciated against the Australian dollar. This means that B, who is receiving euro payments, will receive more Australian dollars for each euro they receive. Therefore, B will incur a loss.

In a Currency Swap Involving a Receiving Australian Dollar Payments