4 ms·
That's... not how FX swaps work. FX swaps are where Korea fronts up with however many trillion KRW, giving it to the Fed (or whoever else, but the Fed would be
by bfg_9k 1y ago
That's... not how FX swaps work.
FX swaps are where Korea fronts up with however many trillion KRW, giving it to the Fed (or whoever else, but the Fed would be the only counterparty that would be able to accommodate that size), the Fed then hands over the USD to the Koreans.
Presumably, the Koreans would then invest that USD.
Then at some point in the future the trade would be unwound and each side would receive their own currency back.
There's no currency risk in the trade for either side (unless one side defaults).
- mamonster 1y agoOf course there is currency risk, that's why the swap would get marked to market. There is no "currency risk" in the sense that you are locked into an exchange rate and (in case of fixed for fixed) the interest rates on the principal, but there is still currency risk. It's like saying there is no price risk in a long term LNG contract.
- deleted 1y ago[deleted]
- msy 1y agoWhat do you think happens if the exchange rate moves between the point of handover and the point in the future where the trade is unwound?
- deleted 1y ago[deleted]