Structure, pricing, risk, and reporting of cross-currency swaps in current Canadian markets.
Currency swaps extend swap logic across two currencies at the same time. They are used to transform funding, hedge foreign-currency cash flows, and manage balance-sheet exposure when borrowing and operating currencies do not match.
This chapter is easier if you keep three ideas separate:
the structure of the swap
the pricing of the swap
the operational and regulatory controls around the swap
What This Chapter Covers
This chapter moves from basic structure to more practical issues:
how principal and interest payments are exchanged
why a currency swap can be viewed as synthetic borrowing in one currency and synthetic lending in another
how pricing depends on discount curves, FX rates, and basis
why firms use swaps for funding, hedging, and asset-liability management
how settlement risk, emerging-market frictions, and trade-repository reporting affect real-world execution
Exam Focus
Students should be able to:
distinguish a currency swap from a simple FX forward
explain why principal exchange is often central to the structure
identify the business reasons for using a currency swap
understand the main pricing logic without getting lost in model detail
recognize the operational risks created by cross-border settlement and reporting obligations
The strongest exam answers connect the cash-flow structure to the business objective. A currency swap is rarely used in isolation. It is normally part of a funding, hedging, or treasury-management decision.