The Primary Reasons for a Counterparty to Use a Currency

question 72

Multiple Choice

The primary reasons for a counterparty to use a currency swap are

• A)to hedge and to speculate.
• B)to play in the futures and forward markets.
• C)to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market,and the benefit of hedging long-run exchange rate exposure.
• D)to hedge and to speculate,as well as to play in the futures and forward markets.

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Definitions:

Expected Value

Is the predicted value of a variable, calculated as the sum of all possible values each multiplied by the probability of its occurrence.

Service Contract

A legally binding agreement between two or more parties where one agrees to provide a specified service to the other for a payment.

Peace of Mind

A state of mental and emotional tranquility, free from stress or worry.

Availability Heuristic

A cognitive shortcut based on the first examples that spring to mind when considering a particular topic, idea, strategy, or choice.