International Finance Questions Assignment Example | Topics and Well Written Essays - 2250 words

International Finance Questions - Assignment role modelInterest say business deals are over the counter (private) transactions and they are highly liquid fiscal derivatives that can be use by hedgers to manage both their fixed and go assets and liabilities. A fellowship that pay fixed rate is referred to as the payer and the receiving party is called the receiver. For example, X agrees to pay fixed rate of affaire under specified time intervals to W and in return, X receives variable or drifting amuse on notional linguistic rule from W. The types of currency swaps include fixed for floating swap for akin currency, fixed for floating rate for different currencies, floating for floating swap for same currency, floating for floating rate for different currencies and fixed for fixed rate swap for different currencies. Currency swap refers to a foreign-exchange currency agreement entered into by two parties in relation to principal alone or with interest for payment of a specifi ed loan sum in one currency for an equivalent principle and interest of a specified loan sum in another currency (Shamah, 2003). Payments are do periodically and at maturity or termination of the commence, the principal amounts are re-exchanged. Currency swaps are over the counter financial instruments. Foreign currency swaps are long term because they involve high cost associated with finding counterparty. Currency swap are further divided into two. Principle only currency swap and principal plus interest currency swap. Principle only currency swap is appropriate for contract that are up to ten years and involves exchange of principle with another party in a specific time in future at a rate agreed at the present. It is used to secure cheap loan and reduce exposure to exchange rate fluctuations. Principal plus interest currency swap considers both principal and interest payments. In currency swap, principal is exchanged on national amounts at market rates, often using the same ra te for the transfer at innovation and at maturity. Credit default swaps refers to contracts between two parties, where one who buys credit default swap, pays a marketer and receives a payoff if loan is defaulted.