A Fixed-For-Fixed Currency Swap

question 7

Multiple Choice

A fixed-for-fixed currency swap

• A) Is equivalent to a portfolio of FRAs
• B) Is equivalent to a long position in one bond and a short position in another bond
• C) Is worth the same whether or not principals are exchanged
• D) Involves no exchange of principals at the beginning of its life

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Definitions:

Economic Climate

The overall state of the economic environment, factoring in aspects like growth rates, employment levels, inflation, and consumer spending.

Financial Leverage

Financial leverage refers to the use of debt (borrowed funds) to amplify the potential returns to shareholders. It increases the potential for both gains and losses.

Operating Risk

The risk arising from the day-to-day operations of a company, indicating the variability in operating income due to changes in revenue and expenses.

Financial Risk

The potential for losses due to factors affecting the overall financial market or specific securities within a portfolio.