What is a swap market? How can swap markets help international firms obtain low-cost sources of capital and manage foreign exchange risk?

What will be an ideal response?

A particularly important facet of the international capital market is the swap market, in
which two firms can exchange their financial obligations. Swaps are undertaken to change the
cost and nature of a firm's interest obligations or to change the currency in which its debt is denominated.The advantage of the swap market is that it allows you to adjust exposure profiles without having to undo the underlying transactions. MNCs also often engage in currency swaps to shift their interest and payment obligations from a less preferred currency to a more preferred one. An MNC may consider its net obligations in one currency to be too large or may expect exchange rate fluctuations to adversely affect its loan repayment costs. International banks play a key role in the currency swap market. Because they continually monitor foreign-exchange markets as well as their own net currency exposures, they usually can accommodate any MNC's currency swap needs.