What event can increase the cost of euro payments in dollar terms in a currency swap?
Understand the Problem
The question is asking about specific economic events that could affect the valuation of euro payments relative to U.S. dollars in the context of a currency swap. It seeks to identify which event would lead to an increase in costs when exchanging euros for dollars.
Answer
Increase in the euro's value relative to the dollar.
An increase in the value of the euro compared to the dollar will increase the cost of euro payments in dollar terms in a currency swap.
Answer for screen readers
An increase in the value of the euro compared to the dollar will increase the cost of euro payments in dollar terms in a currency swap.
More Information
Currency swaps involve exchanging cash flows between two currencies at a predetermined rate. If the euro strengthens relative to the dollar, it will increase the cost of payments that need to be made in euros but settled in dollars.
Sources
- Currency Swaps: Definition, How and Why They're Done - investopedia.com
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