medium · FRM Part 1 Financial Markets and Products
In a currency swap, how is the 'Swap Rate' for each leg typically determined at inception?
- It is the spot exchange rate adjusted upward for the 5-year expected inflation differential.
- It is the par yield of a bond denominated in that currency for the swap's maturity.
- It is simply the domestic currency's risk-free rate applied uniformly to both legs.
- It is fixed administratively by the central bank that issues the base currency.
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