Explanation:

Statement (b) is false, which makes it the correct answer. Covered Interest Rate Parity (CIRP) has indeed failed, and violations (a non-zero cross-currency basis) have been persistently observed post-GFC in both FX swaps and cross-currency swaps.

The other statements highlight accurate differences between the two:

(a) is true: FX swaps are generally short-term (< 1 year), while cross-currency swaps are long-term.
(c) is true: In an FX swap, the final exchange uses the forward rate agreed upon initially. In a cross-currency swap, the final exchange reverts the principal amounts at the initial spot exchange rate.
(d) is true: FX swaps have just the initial and terminal cash flows. Cross-currency swaps involve interim interest payment exchanges over the swap's life.

20.17.2. In regard to the difference between a foreign exchange (FX) swap and a cross-currency swap, each of the following is true (as a difference) EXCEPT which statement is false?

Exam-Like

Community

UAnonymous

Last updated: July 5, 2026 at 07:00

a) An FX swap is typically a shorter-term instrument while a cross-currency swap is a longer-term instrument (typically above one year)

b) Covered interest rate parity (CIRP) cannot fail (i.e., cannot be violated) in the case of an FX swap, while CIRP cannot even be tested on a cross-currency swap because the final exchange uses the initial spot rate

c) At maturity, the FX swap has the counterparties repay the borrowed amounts at the pre-agreed forward rate, but the cross-currency swap exchanges the borrowed amounts as the initial spot rate

d) The FX swap typically has only two cash flow legs (i.e., initially simultaneous lending and then repayment at maturity), but the cross-currency swap exchanges several interim interest payments

Financial Risk Manager Part 2

Get started today

Get started today

Comments (0)

Comments (0)

20.17.2. In regard to the difference between a foreign exchange (FX) swap and a cross-currency swap, each of the following is true (as a difference) EXCEPT which statement is false?

20.17.2. In regard to the difference between a foreign exchange (FX) swap and a cross-currency swap, each of the following is true (as a difference) EXCEPT which statement is false?