In this article, LTG GoldRock will share with you what are the functions of interest rate swap and currency swap in exchange transactions ~
1. The function of interest rate exchange in exchange transactions :
(1) Reduce financing costs .For various reasons, for the same currency, different investors are different in different financial market credit levels . Therefore, the interest rate of financing is different.EssenceInterest rate interchange can use this relatively comparative advantage for swap arbitrage to reduce financing costs.
(2) Asset -liability management .Interest rate exchange can replace fixed interest rate bonds (debt) with floating interest rate bonds (debt).
(3) Risk of interest rates .For a currency, whether it is a fixed interest rate or a floating interest rate holders, they face the impact of changes in interest rates.For debtors with fixed interest rates , if the trend of interest rates increases, its debt burden is relatively high; for debtors with floating interest rates, if the trend of interest rates rises, the cost will increase.
2. Monetary exchange function:
(1) Arbitrage .Assets that need to be directly invested, assets that cannot be obtained by direct investment, or low costs that are lower than direct financing .
(2) Assets and liabilities .Different from interest rate exchange , currency exchange is mainly to match the currency of assets and liabilities.
(3) Preservation of currency exposure .With the increasingly globalization of the economy, many economic activities began to expand to the world.The company's assets and liabilities began to be priced at a variety of currencies. Currency exchange can be used to minimize exchange rate risks related to these currencies . The exchange rate risk of existing assets or liabilities is preserved, and income or costs are locked.
(4) Avoid foreign currency control.Many countries have implemented foreign exchange controls , so that the cost of remittance from these countries or internal loans to these countries is high or even impossible.This problem can be solved through currency exchange.
