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Do currency swaps have currency risk?

July 19, 2012



From → Asset Valuation

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    It’s an agreement, no. A currency swap is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency

    • This is a card to remind me how to solve a CFA Level 1 practice problem, the short answer is no currency swaps don’t have currency risk. The reason is the nature of the agreement/contract. It is a trick question because you’re exchanging payments in foreign or at least two different currencies, people assume their must be some currency risk, but there isn’t.

      The Wikipedia has more information on Currency Swaps as does the Investopedia.

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