Final answer:
A currency swap deal does allow countries and companies to protect themselves against foreign exchange risk by guaranteeing a certain exchange rate in the future. This form of hedging provides financial certainty against unfavorable currency fluctuations.
Step-by-step explanation:
A currency swap deal does indeed enable countries, as well as companies, to hedge against foreign exchange risk. When a company has a contract to receive payment in a foreign currency at a future date, they face the risk that the exchange rate might change unfavorably. This risk can be mitigated by entering into a
currency swap deal, which is a financial contract that guarantees a certain exchange rate in the future, regardless of market fluctuations. Institutions offering these hedges typically charge a fee or create a spread in the exchange rate. The result is financial certainty regarding the value of the foreign currency payment.