Explanation:
Both instruments involve an exchange of currencies. However, the key distinction is that FX swaps involve an agreement to reverse the transaction at a later date, whereas currency swaps do not necessarily involve a reversal. This similarity captures the essence of the derivative
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Q.4191 FX swaps and Currency Swaps are derivative instruments utilized in the hedging of foreign currency exposures. Which of the following correctly points out the similarities between the two?
A
Both instruments involve the exchange of principal and interest payments in different currencies.
B
Both instruments are used primarily to manage long-term interest rate risk.
C
Both instruments involve an exchange of currencies.
D
Both instruments are commonly utilized by central banks to manage their currency reserves.
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