Fundamentals of Corporate Finance with Connect Access Card
Fundamentals of Corporate Finance with Connect Access Card
11th Edition
ISBN: 9781259418952
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
Question
Chapter 21, Problem 21.1CTF
Summary Introduction

To discuss: The type of exchange made by the two parties

Introduction:

Exchange rate is the price of a country’s currency that in term of another nation’s currency. This rate of exchange can be either floating or fixed.

Expert Solution & Answer
Check Mark

Answer to Problem 21.1CTF

The United travel agent is exchanging a fixed rate of payment with the Foreign Travels at a variable rate payment. This form of exchange is called as an interest rate swap.

Explanation of Solution

Interest rate swap is termed as a swap contract in which two parties exchange payment obligations that involves various interest payment-schedule. The most commonly used swap transaction is interest rate swap. In this kind of swap, the parties make fixed-rate payments with exchange of floating-rate payments or vice-versa.

Conclusion

Swap is a derivative instrument where two parties agree to exchange payment responsibility on two financial-liabilities that are identical to each other in the values of principles. However, payment-patterns can vary in different situations because swaps are of two kinds, namely interest rate swap and currency swap.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
If a U.S. company makes a credit sale to a foreign customer required to make payment in U.S. dollars, can the U.S. company have an exchange gain or loss on this sale?
Assume that interest rate parity holds. When a currency trades at a forward premium,what does that imply about domestic rates relative to foreign interest rates? When acurrency trades at a forward discount?
When a country adopts a fixed exchange rate regime, what is that the country has to give up (trade off)?

Chapter 21 Solutions

Fundamentals of Corporate Finance with Connect Access Card

Knowledge Booster
Similar questions
    Recommended textbooks for you
  • Financial Management: Theory & Practice
    Finance
    ISBN:9781337909730
    Author:Brigham
    Publisher:Cengage
  • Financial Management: Theory & Practice
    Finance
    ISBN:9781337909730
    Author:Brigham
    Publisher:Cengage