A foreign exchange swap
A) is a spot sale of a currency.
B) is a forward repurchase of the currency.
C) is a spot sale of a currency combined with a forward repurchase of the currency.
D) is a spot sale of a currency combined with a forward sale of the currency.
E) make up a negligible proportion of all foreign exchange trading.

Question

Quizplus · Accepted Answer

A foreign exchange swap is a transaction in which a party simultaneously sells a currency spot and repurchases the same currency forward. This allows the party to obtain the benefit of holding a currency without taking on the risk of exchange rate fluctuations. Option C correctly describes this transaction.

A Foreign Exchange Swap