When a Bank Enters into a Fixed-Floating Currency Swap, It

question 44

Multiple Choice

When a bank enters into a fixed-floating currency swap, it is exposed to

• A)both interest rate and currency exposures.
• B)only interest rate exposures.
• C)only exchange rate exposure.
• D)zero interest rate exposure over the life of the swap.
• E)zero interest rate and currency exposure over the life of the swap.

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Definitions:

Treasury Bills

Short-term government securities issued at a discount from the face value and maturing in a year or less, representing a secure investment.

Collection Time

The typical period a business waits to receive money owed by its customers.

Weekly Disbursements

The total amount of money a business pays out in a week, covering expenses such as salaries, supplier payments, and other operational costs.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision. It represents the benefits an individual, investor, or business misses out on when choosing one alternative over another.