A balance guaranteed swap that is mainly used in cross-currency transactions whereby the coupons on one leg of the swap and also the swap’s notional are denominated in a foreign currency. This swap is exposed to an additional type of risk exemplified in its foreign-exchange exposure. The notional of the swap evolves over time and is denominated in a foreign currency. Furthermore, the swap involves some macroeconomic risk of the country where the obligors are domiciled. Such macroeconomic influences (e.g. inflation, unemployment, etc) may trigger high default rates in the collateral portfolio.
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