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Hedging foreign exchange risk

8.2 Currency swaps

 A currency swap allows the two counterparties to swap interest
rate commitments on borrowings in different currencies.

 In effect a currency swap has two elements:

– An exchange of principal in different currencies, which are
swapped back at the original spot rate

– An exchange of interest rates – the timing of these depends
on the individual contract.

Illustrations and further practice

Now try TYU 7 in Chapter 10

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