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How does a currency swap help in limiting transactional exposure?

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How does a currency swap help in limiting transactional exposure?

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Transaction exposure measures the effect of an exchange-rate change on outstanding obligations which existed before exchange rates changed but were settled after the exchange-rate change.

Firms often have to deal with a "sequence" of accounts payable or receivable in terms of a foreign currency. Such recurrent cash flows in a foreign currency can best be hedged using a currency swap contract, which is an agreement to exchange one currency for another at a ...

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