Question

A US company enters into a currency swap in which pays a fixed rate of in euros and the counterparty pays a fixed rate of in dollars. The notional principals are $million and] million. Payments are made semi-annually and on the basis of 30 days per month and 360 days per year.

For the initial exchange of payments that take place at the beginning of the swap, is the US company paying USD or EURO to the counterparty? [Type in USD or EURO in the answer box]

		EURO
		USD
		Either EURO or USD
		None Above

Answer 1

Answer: EURO

Explaination : If Company X working in Inida and want to start new project in Japan and at a same time one Japanese Company Y wants to expand it's business in India. They required fund their project in local currecny. In that case these two company enter into CURRENCY SWAP option.

Example

An example of a cross currency swap for an INR/JPY transaction between an Indian and an Japanese company follows:

In a cross currency basis swap, the Indian company would borrow JPY 500 million and lend ‎INR 1 billion to the Japanese company. Assuming a spot exchange rate of INR 1.44 per JPY for an operation indexed to particular exchange rate when the contract is initiated.

The Indian company would receive an interest payment in INR from its counterparty and it would pay the Japanese company in JPY. When the contract comes to end, the Indian company would pay JPY 500 million in principal back to the Japanese company and would receive its initial ‎INR 1 billion in exchange.