The purpose of this paper is to introduce and to classify the swaps and to investigate the characteristics distinguished from the other financial instruments and to show the possibility of using the swaps in hedging the exchange risk and interest rate risk.
By Kalman Filter Method, it is discovered that a premium exists in the forward exchange rate.
The results of empirical research show that the interest rate risks exist among LIBOR, T-Bill, CP and Prime in U.S.A. and the forward rates are suitable for hedging the long-term exchange risks if the premiums are paid. So the swaps can be used for hedging this interest rate risks and exchange risks.
The limitations of this paper are not to show the profitable hedging strategy and not to introduce the correct swap valuation model. This issues should be updated in further research.