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This might be level 1 material, but can anybody show me the picture/process of a currency swap? I'm mainly confused on who's paying which currency when they are "exposed" to one currency (the direction)
Let's say we are talking about $USD and $CAD. If Party A wants to "hedge $CAD exposure" (I'm assuming this means Party A pay $CAD fixed? or is it the other way round?), what happens at initiation, payments, and termination?
Party A pays $USD principal and receives $CAD principal.
Party A pays fixed rate on $CAD and receives float/fixed $USD.
Party A returns $CAD principal + last coupon payment and receives back $USD principal + coupon.
Is the above correct for hedging $CAD exposure? It would be best if the solution can be presented in the above format, thanks!