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Both interest rate swaps and currency swaps manage risk through the exchange of payment flows between the two parties. Interest rate swaps involve the exchange of different types of interest rate payments, while currency swaps involve the exchange of different currencies.
The main functions of currency swaps include risk management, financing, reducing financing costs, and dealing with Liquidity risk. Through currency swaps, companies or financial institutions can manage foreign exchange risks and reduce the uncertainty caused by exchange rate fluctuations.