Currency swaps

This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.

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October 29, 2020 at 8:21 am #593396
trainee1
Participant
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Dear John,
Hope you are well.
Could you please explain why this sentence is wrong? (December 2014 – MCQ 8)
Currency swaps can be used to hedge exchange rate risk over longer periods than the forward market.
Many thanks
October 29, 2020 at 9:40 am #593410
John Moffat
Keymaster
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It isn’t wrong – it is correct (and the examiner’s answers show it as being the correct answer!!!).
October 29, 2020 at 1:45 pm #593435
trainee1
Participant
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Sorry, I wrongly wrote “wrong”!!! 🙁
My question is why that sentence is correct?! Because as I know we can sing forward contract with long periods too. Why currency swaps cover longer period?
October 30, 2020 at 8:55 am #593497
John Moffat
Keymaster
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Forward rates are only provided over short periods (months). A swap can continue for many years.
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