When two borrowers engage in a currency swap, they agree to:
A) a one-time currency exchange equal to the principal amount borrowed.
B) make payments on each other's borrowings in a different currency.
C) pay to each other any depreciation or appreciation of the currency.
D)exchange fixed-rate interest payments for variable-rate interest payments.

Question

Quizplus · Accepted Answer

When two borrowers engage in a currency swap, they agree to make payments on each other's borrowings in a different currency. For example, if one borrower has borrowed $1 million in USD, and the other borrower has borrowed €800,000 in euros, they can agree to swap payments so that one borrower pays the other in USD, and the other borrower pays the first borrower in euros. This allows them to effectively borrow in a currency that may have better interest rates or more favorable borrowing conditions.

When Two Borrowers Engage in a Currency Swap, They Agree