Currency Swap Risk Prevention Research

Financial derivatives are the outcome of financial innovation. Nowadays, the financial environment is changing severely every day, and as a result of this phenomenon, the interest rate market and foreign exchange market are waving frequently that make so many financial institutions and transnational corporations under the financial risks which caused by them. In order to evade these risks, many financial derivatives were created because of their special affection.Financial derivatives can make good use of the differences that the derivative dealers' expectation of the future market and the attitude towards risks, and then transfer risks from those who dislike risks to those who like, so that both sides can benefit from it. Financial swap is one of the derivatives, and when it started in the 1980's, it has made great progress both in market scale and deal technology, and now it become to be one of the most flourishing derivatives in the financial market. Also, financial swap with other instruments such as forwards, futures and options constitute the mainstream of financial instruments and make the international financial market keep on growing and becoming more effective.Currency swap is a special kind of financial swap, it has its own financial risks while using it as a tool for raising money and manage the assets and debts. So if you want to use currency swap to help financial institutions and enterprises to raise money and manage assets and debts, you should know more about currency swap, especially the aspect of precautions for currency swap risks. That's all very important for the currency swap employees.Started from the background of currency swap's emergence, this paper introduces the basic framework and style of currency swap, and then from the user's view point, gives us some examples about currency swap in raising money and managing assets and debts. When finishing the economic analysis for currency swap, the paper makes a simple introduction of currency swap pricing, and base on this, we study the basic credit risk and market risk in the process of currency swap, and then put forward some suggestions in order to avoid these risks. At the end of this paper, we also suggest some advices about how to bring in currency swap according to the current domestic financial market development.