Which of the following statements is correct when comparing the differences betw

Question

Which of the following statements is correct when comparing the differences
between an interest rate swap and a currency swap?

Question options:

1)

2)

3)

4)

5)

1)

At maturity, there is no exchange of principal between the counterparties
in interest rate swaps and there is an exchange of principal in currency
swaps.

2)

At maturity, there is no exchange of principal between the counterparties
in currency swaps and there is an exchange of principle in interest rate
swaps.

3)

The counterparties in an interest rate swap need to consider fluctuations
in exchange rates, while currency swap counterparties are only exposed
to fluctuations in interest rates.

4)

Currency swap is more riskier than comparable interest rate swap.

5)

More than one statement is true

Explanation / Answer

SWAP is a forward contract between two parties to exchange their Currency and interest rate accoring to their convenience. During life of swap each parties exchnage their interest rate and pays interest according to other parties rate. But At maturity, there is no exchange of principal between the counterparties in interest rate swaps and there is an exchange of principal in currency swaps.

Also, At maturity, there is no exchange of principal between the counterpartiesin currency swaps and there is an exchange of principle in interest rate swaps..

Option (1) and (2) is correct answer.

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