Credit risk refers to the risk that the borrower may not be able to repay any credit granted. This therefore exposes the lender or granter of credit to loss for the non-payment or default. (1.5 marks)

Liquidity risk on the other hand is the risk that a company may be unable to meet its financial commitments on the due date contrary to expectations from counterparties. (1.5 marks)

A foreign currency swap is an agreement to exchange principal and interest payment in one currency for equivalent principal and interest payment in another currency. It is used usually to raise liquidity in one currency by utilizing the surplus liquidity in another currency without converting the currency to create exchange rate risk. It can also be done for trading purposes. Each party is borrowing and paying interest on the currency is short in liquidity by utilizing the liquidity surplus in has in the other currency.                                                                                                                                                  (2 marks)

An interest rate swap is an agreement between two parties to exchange interest payments on an agreed Notional amount in the same currency for a specific maturity. It could be from floating to fix or from fix to floating. One party pays floating and receives or the vice versa The floating rate is referenced to a market benchmark like LIBOR and changes from time to time based on the changes in the benchmark.                                                                                                (2 marks)