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A Currency Swap Has More Counterparty Risk Than an Interest-Rate

Question 2

Multiple Choice

A currency swap has more counterparty risk than an interest-rate swap because


A) Unlike an interest rate swap, the counterparties are usually in different countries, making the swap vulnerable to different legal systems.
B) Unlike an interest rate swap, the currency swap also involves an exchange and re-exchange of principal amounts, making the swap vulnerable to movements in exchange rates.
C) Foreign exchange markets have more credit risk than interest rate markets.
D) Each counterparty is less likely to default in its home currency than in a foreign currency.

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