There aren't a lot of counterparties to a $350Bn currency swap. SK is manoeuvring to make the Fed offering the swap and thus taking the FX risk as a requirement for this deal, which is I suspect why you're reading about this.

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bfg_9k 3 days ago | parent [-]

That's... not how FX swaps work.

FX swaps are where Korea fronts up with however many trillion KRW, giving it to the Fed (or whoever else, but the Fed would be the only counterparty that would be able to accommodate that size), the Fed then hands over the USD to the Koreans.

Presumably, the Koreans would then invest that USD.

Then at some point in the future the trade would be unwound and each side would receive their own currency back.

There's no currency risk in the trade for either side (unless one side defaults).

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mamonster 3 days ago | parent | next [-]

Of course there is currency risk, that's why the swap would get marked to market. There is no "currency risk" in the sense that you are locked into an exchange rate and (in case of fixed for fixed) the interest rates on the principal, but there is still currency risk.

It's like saying there is no price risk in a long term LNG contract.

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msy 3 days ago | parent | prev [-]

What do you think happens if the exchange rate moves between the point of handover and the point in the future where the trade is unwound?

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