Cross Currency Swaps
Corporations deal with multiple currencies and manage FX risk
In this Video, Irene and Filippo get a 1 million $ financing for their successful corporation but their costs are in €. By entering in a derivative contract called Cross currency swap, with a bank, they can effectively turn the $ flows on the loan into € flows, to better match their costs and revenues in the domestic currency. The FX rate is set at the start of the contract so they will not run any capital loss risk on the 1m $ amount.
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