If the exchange rate alters during the lifetime of a cross-currency swap,this:
A) has no impact as all FX risk has been eliminated.
B) will impact only on the interest payments during the swap's lifetime.
C) will impact only when the principal amounts are re-exchanged at maturity.
D) will impact on both interest payments and principal repayments.

Question

Quizplus · Accepted Answer

The exchange rate alteration will impact both the interest payments and principal repayments in a cross-currency swap as the swap agreement involves the exchange of both principal and interest payments between two different currencies. Any change in the exchange rate during the swap's lifetime will affect both the interest payments and the principal repayment amount when the swap matures.

If the Exchange Rate Alters During the Lifetime of a Cross-Currency