If the Exchange Rate Alters During the Lifetime of a Cross-Currency

question 10

Multiple Choice

If the exchange rate alters during the lifetime of a cross-currency swap,this:

• A) has no impact as all FX risk has been eliminated.
• B) will impact only on the interest payments during the swap's lifetime.
• C) will impact only when the principal amounts are re-exchanged at maturity.
• D) will impact on both interest payments and principal repayments.

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Definitions:

Two-factor Model

A Two-factor Model in finance is an asset pricing model that uses two variables to calculate the value of an asset or the expected return.

Commodity Prices

The market prices for raw materials or primary agricultural products.

Market Risk

The risk of losses in investments due to factors that affect the entire market or economy.

Arbitrage Opportunity

A situation in which it is possible to simultaneously buy and sell an asset or commodities in different markets to profit from price differences.