Which of the following is an appropriate definition of a currency swap?
A)A swap used to hedge against exchange rate risk from mismatched currencies on assets and liabilities.
B)A swap used to hedge against the general depreciation of a currency.
C)A swap used to hedge against the general appreciation of a currency.
D)A swap used to speculate on the depreciation or appreciation of a currency.

Question

Quizplus · Accepted Answer

A currency swap is a financial instrument that allows two parties to exchange notional amounts of different currencies for a predetermined period of time. It is commonly used to hedge against exchange rate risk from mismatched currencies on assets and liabilities. It is not intended as a tool for speculation on currency depreciation or appreciation, nor is it designed to simply hedge against a currency's general depreciation or appreciation.

Which of the Following Is an Appropriate Definition of a Currency