Explanation:
The statement is INCORRECT with respect to Default risk. A currency swap does NOT provide protection against default risk; in fact, currency swaps expose parties to default (counterparty) risk because there is a possibility that one of the counterparties will fail to make the required payments as agreed. Therefore, while a currency swap does expose parties to interest rate and currency risk, it does not eliminate or protect against default risk—making the statement incorrect specifically in relation to default risk.
Q.3559 Consider the following statement: "A currency swap exposes parties to two sources of risk – interest rate and currency risk – while provides protection against default risk."
The statement is INCORRECT with respect to:
A
Default risk
B
Currency risk
C
Interest rate risk
D
None of the above
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