Walden University| FNCE 4103 – International Finance | Walden University
As hedging strategies, investors and businesses can use interest rate swaps or currency swaps to reduce their risk of being exposed to market changes. A swap of interest rates is an agreement where two people agree to each pay the same fixed rate for a loan and the other a floating rate based on current market rates. Businesses have protection from unexpected movements in interest rates. Currency swaps are similar but involve exchanging debt denominated in different currencies instead – this can help reduce risk associated with changing exchange rate values which could affect cash flows and overall profits.
Consider the following factors when deciding whether these strategies are appropriate: the size and risk tolerance of the organization; how active you intend to be within the markets for the long-term; how much impact your existing investments have had on your financial position. For example, small businesses looking for short-term protection may be able to benefit from a currency swap since they can lock into favorable exchange rates while still having access liquidity pertaining principal amount originally borrowed though foreign creditors may opt out structure however larger firms already heavily invested global arena would benefit greatly utilizing both types instruments depending upon situation & what exactly trying accomplish since being less roped financially gives greater flexibility maneuvering around volatile economic environments often times experiencing due ever present turbulence politically connected world thus minimizing potential losses experience event worst case scenarios come pass.