Currency swaps are used to:
A)Lock in an exchange rate for future delivery of a foreign currency
B)Effectively transform loans originated in one currency to a different currency
C)Transform fixed-rate loans into variable-rate loans
D)Exchange foreign currencies in amounts not possible in the foreign exchange market

Question

Quizplus · Accepted Answer

Currency swaps are most commonly used to transform loans originated in one currency to a different currency. This is done to take advantage of lower borrowing costs in one currency compared to another, or to diversify currency risks. Choice A is incorrect because locking in an exchange rate for future delivery of a foreign currency is typically done through a forward contract or a futures contract, not a currency swap. Choice C is incorrect because transforming fixed-rate loans into variable-rate loans is done through an interest rate swap, not a currency swap. Choice D is incorrect because currency swaps are typically done in large amounts but are still subject to the limitations of the foreign exchange market.

Currency Swaps Are Used To