The primary reasons for a counterparty to use a currency swap are
A)to hedge and to speculate.
B)to play in the futures and forward markets.
C)to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market,and the benefit of hedging long-run exchange rate exposure.
D)to hedge and to speculate,as well as to play in the futures and forward markets.

Question

Quizplus · Accepted Answer

The primary reason for a counterparty to use a currency swap is to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market, and the benefit of hedging long-run exchange rate exposure. While a currency swap can be used for hedging and speculation purposes, these are not the primary reasons for utilizing a currency swap. Playing in the futures and forward markets is also not a primary reason for using a currency swap.

The Primary Reasons for a Counterparty to Use a Currency