As a foreign exchange hedge, currency swaps have all of the following characteristics EXCEPT
A) an initial exchange by two parties of two principal amounts in two different currencies.
B) principal amounts are reversed at the spot rate at maturity.
C) each party pays the other's interest payment.
D) principal amounts are reversed at a pre-agreed rate at maturity.

Question

Quizplus · Accepted Answer

Currency swaps do not necessarily require the reversal of principal amounts at the spot rate at maturity. Instead, the principal amounts are typically reversed at a pre-agreed rate, which may be different from the spot rate. The other three characteristics listed (initial exchange of principal amounts in different currencies, payment of each other's interest payment, and a pre-agreed rate at maturity) are all typical features of currency swaps.

As a Foreign Exchange Hedge, Currency Swaps Have All of the Following