Borrowers swap their liabilities

CORPORATE borrowers in Hong Kong and other Asian countries have little chance of raising the funds they need in their local currencies.

Asian borrowers typically get a small portion of any sizeable loan in local currency, with the bulk made up of US dollars or some other major currency.

As a result, financing-based currency swaps are common in Asia.

After tapping the US dollar loan market for the price advantages and diversity offered, a company in the territory needs to swap back into Hong Kong dollars to fully hedge its balance sheet.

It has more assets in Hong Kong dollars than US dollars, so it needs to swap the liabilities back into Hong Kong dollars.

Its first step is a currency swap into Hong Kong dollars.