What are the forces stimulating innovations in the Financial Services industry? Explain the Currency Swaps and discuss their benefits and associated risks.
Due to financial innovation'financial system ability would improve in terms of determining the market price and guaranteed liquidity for 1instruments,source for company’scapital,encourage savings and investments through risk sharing and risk management products. The benefits accrued include avoiding regulations and optimizing taxes, reducing transaction costs and increasing liquidity of market-based products, reducing agency costs, reducing informational asymmetry,increasing risk sharing opportunities and making capital intermediation more efficient and cheaper for clients.However, new financial instruments generate repercussions viavarious channels. For nstance,credit flows are stimulated by use of interest rates options and forward rates agreements and customers are more likely to request and commit debts.Financial intermediaries have seen abright future due to constant innovation of financial instruments such as derivative market. Innovation in the financial sector is promoted by factorssuch as technological dynamism and globalization amongst others.
A currency swap, sometimes referred to as a cross-currency swap, involves the exchange of interest and sometimes of principal in one currency for the same in another currency. Interest payments are exchanged
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