Question

Wht the answer B is not correct

A foreign exchange swap:

A) Involves a spot transaction in conjunction with a forward reverse transaction. The parties agree on the rate governing which the latter transaction at the time of swap formation

B) Involves a spot transaction in conjunction with a forward reverse transaction and periodic exchanges of pre-agreed amounts

C) Involves periodic exchanges of pre-agreed amounts based on a notional principle

D) Has no benefits compared to an option contract or a brokered forward contract D) None of the above is true

Answer 1

FOREIGN EXCHANGE SWAP

Foreign exchange swap is the agreement to exchange currency between two foreign parties. Here the principal and interest amount on loan made in one currency for principal and interest payments of a loan of equal value in another currency. Which means the transaction takes place for the principal amount and interest amount in one currency and this value will be same as the other currency. Here when the interest payment is over and the swap is over then principal amount is transfered at a pre agreed rate. Here the transaction is not by the periodic exchange of preagreed amount. The interest payment only happend in a swap and in a periodic manner but the principal transaction is made at one time at a agreed price. Here the initial exchange of the principal is done and then the interest payment is done in the coming transaction. So this above said statement is wrong about foreign exchange swap.

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