A currency swap without the exchange of notional amount is most likely to be used in what situation?
A)a company issuing a bond
B)a company generating cash flows in a foreign currency
C)a company arranging a loan
D)a dealer trying to hedge a currency option
E)none of the above

Question

Quizplus · Accepted Answer

A currency swap without the exchange of notional amount is also called a cross-currency basis swap. This type of swap is commonly used by a company generating cash flows in a foreign currency to manage their currency risk. It involves exchanging fixed or floating interest rate payments in one currency for fixed or floating interest rate payments in another currency, without the actual exchange of principal amounts. The swap helps to eliminate the effects of currency fluctuations on the company's cash flows. The other options (issuing a bond, arranging a loan, and hedging a currency option) may involve the exchange of notional amounts and may require different types of financial instruments.

A Currency Swap Without the Exchange of Notional Amount Is