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Currency swap exchanges principal + interest cash flows in two currencies. Compared with FX forward, a currency swap typically covers:
AA single near-term cash flow only
BA series of multiple periodic cash flows over years
COnly interest cash flows, not principal (within the standard regulatory framework)
DOnly principal cash flows, not interest
Answer & Solution
Correct answer: B. A series of multiple periodic cash flows over years
1. Identify what the question asks: this concept maps to currencyswap (§12).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (B).
_Source: ICAI BoS CA Final Paper 2, Ch 10 "Foreign Exchange Exposure and Risk Management"_
Related questions
SWIFT in foreign exchange refers to:Money-market hedge for a 1-year USD 1 million receivable: borrow USD at 4%, convert to INRAmerican quote of USD/INR vs European quote: a USD/INR of 83.20 (INR per USD) viewed as EuIf IRP is violated and forward is too cheap relative to theoretical, the arbitrage is to:Continuous IRP: F = S · e^{(r_dom − r_for) T}. With S = 80, r_dom = 6%, r_for = 2%, T = 1,An exporter expects USD 1,00,000 in 60 days. To hedge transaction exposure most simply:Forward USD/INR 84.00, spot 83.00, time 3 months. Annualised forward premium (continuous-eUSD/INR bid = 83.10; ask = 83.20. Quoting USD/INR using INR/USD inversion gives bid ≈ 1/83