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Bookmark or Share- Interest Rate Swap | Example & Meaning - InvestingAnswersThis is considered a basis swap. For this interest rate swap example, Company ABC has a loan with a floating interest rate indexed to the 1-month LIBOR, but it wants its rate indexed to the 6-month LIBOR. Instead of exchanging a fixed rate for a floating one, it exchanges one type of floating rate for another.
- Pegged Exchange Rate Definition & Example | InvestingAnswersA pegged exchange rate fixes one country's currency to another country’s currency. In order to maintain a pegged exchange rate, a central bank must maintain a high level of currency reserves. The rate is beneficial in that it facilitates trade and investment between two countries with the pegged currencies. It can be especially advantageous ...
- Fixed Exchange Rate Definition & Example - InvestingAnswersThe existence and argument for these types of fixed rates is that the fixed exchange rate facilitates trade and investment between the two countries with the pegged currencies. It can be especially beneficial for the smaller country, which depends more heavily on international trade. A fixed exchange rate also has its weaknesses; once pegged to ...
- Floating Exchange Rate Definition & Example - InvestingAnswersFloating exchange rates mean that currencies change in relative value all the time. For example, one U.S. dollar might buy one British Pound today, but it might only buy 0.95 British Pounds tomorrow. The value 'floats.'. The concept of floating exchange rates was not a genuine reality until the Bretton Woods agreement and the International ...
- Foreign-Exchange Risk Definition & Example - InvestingAnswersForeign-exchange risk is the risk that an asset or investment denominated in a foreign currency will lose value as a result of unfavorable exchange rate fluctuations between the investment's foreign currency and the investment holder's domestic currency. Holders of foreign bonds face foreign-exchange risk, because those types of bonds make ...
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