An Australian company has issued USD paper into the US debt markets.The company is investigating the possibility of entering into a cross-currency swap.Which of the following generally form the basic mechanics of a cross-currency swap?
i.Re-exchange of principal normally takes place at the same exchange rate as that used at the commencement of the swap.
ii.At the conclusion of the swap,principal amounts are re-exchanged.
iii.Principal amounts,in the currency of debt,are exchanged at the start of the swap.
iv.Interest payment commitments are swapped.
v.Involves the exchange between two parties of debt denominated in one currency,for debt denominated in another currency.

Question

Quizplus · Accepted Answer

The basic mechanics of a cross-currency swap usually involve the re-exchange of principal at the same exchange rate as that used at the start of the swap. At the end of the swap, the principal amounts are re-exchanged. Principal amounts in the currency of debt are exchanged at the beginning of the swap. Interest payment commitments are swapped, and the swap involves the exchange of debt denominated in one currency for debt denominated in another. Therefore, options i, ii, iii, iv, and v all form the basic mechanics of a cross-currency swap, making option C the correct answer.

An Australian Company Has Issued USD Paper into the US