The Swap as a Hedge in Foreign Exchange

by Claude McMillan



The lips and downs of foreign exchange are one of the risks which American firms must accept if they manufacture or sell products abroad, but there are prudent ways to minimize it. One device which has proved effective as a hedge against losses, is the currency swap. Here is how it works in Brazil where private U. S. firms, using a combination spot and futures agreement, swap dollars for cruzeiros with the Bank of Brazil, and, a year later, swap the cruzeiros back for dollars at a guaranteed rate.

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