Explain how the trader could use a diffswap

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The Canadian dollar LIBOR rate is 2% higher than the U.S. LIBOR rate for all maturities. A trader thinks that the spread between three-month U.S. LIBOR and three-month Canadian LIBOR will widen, but is unsure about how the exchange rate between the U.S dollar and Canadian dollar will move. Explain how the trader could use a diffswap. Why would the trader prefer a diff swap to a floating-for-floating currency swap?

Reference no: EM131409885

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