A cross-currency swap involves the exchange of:

Question

BlackTom AI · Accepted Answer

Let’s break down what a cross-currency swap actually involves and then evaluate each choice.
Option a: 'Interest payments in the same currency between two parties.' In a cross-currency swap, the two legs are in different currencies, and each party pays interest in the currency it borrows. So this statement is incorrect because the payments are not in the same currency.
Option b: 'Notional amounts without actual interest payments.' A cross-currency swap does involve notional exchanges, but it also includes regular interest payments in each currency. Therefore this option is misleading and incomplete, making it incorrect.
Option c: 'Interest and principal payments denominated in the same currency.' While the principal is exchanged at the start and end, those notions are in different currencies for a cross-currency swap; the two legs are in different currencies. Thus, this statement is false.
Option d: 'Fixed-rate interest for floating-rate interest in one currency.' This describes a plain vanilla swap scenario within a single currency and does not capture the cross-currency aspect, so it’s incorrect.
Option e: 'None of the options are correct.' Given that none of the other statements accurately describe a cross-currency swap (which involves exchanging notional amounts in different currencies and making interest payments in each respective currency), this option is the correct characterization.

FINS5512-Financial Markets & Institutions - T3 2025

A cross-currency swap involves the exchange of:

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