Currency Swaps and Exposure Transformation

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Currency Swaps and Exposure Transformation - Article

Currency swaps allow counterparties to exchange **interest payments and/or principal amounts in different currencies**, helping transform the currency and interest-rate characteristics of assets or liabilities. This article explains currency-swap structure through practical cases involving foreign-currency borrowing, INR liabilities, fixed and floating rates, principal exchanges, hedge mismatches, counterparty risk, and the important distinction between a currency swap and a foreign-exchange swap.

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