A currency swap involves the exchange of principal and interest in one currency for the same in another currency, often to reduce exposure to foreign exchange risk and interest rate risk.
The rate of interest that will apply to a loan or deposit beginning on a future date and maturing on a second future date. It is a crucial concept in financial markets for managing interest rate risk.
Interest-Rate Risk, also known as interest-rate exposure, refers to the risk arising from changes in interest rates. These changes can impact the value of fixed-interest assets and liabilities, cause mismatches in asset-liability repricing, and influence prepayment and reinvestment activities.
Measurable possibility of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. Various types of risk include actuarial risk, exchange risk, inflation risk, interest rate risk, inventory risk, liquidity risk, political risk, repayment (credit) risk, risk of principal, systemic risk, underwriting risk, and unsystemic risk.
A swaption is an option that grants the holder the right, but not the obligation, to enter into an interest rate swap agreement. It is a useful financial instrument for managing interest rate risk.
