Analysis of Swap Strategies for XYZ Corporation

XYZ Corporation, a U.S.-based company, has recently issued a 5-year fixed-rate bond with an annual coupon rate of 5%. XYZ anticipates a drop in interest rates over the next few years and is considering using a swap strategy to alter its interest rate exposure. Specifically, the company is contemplating entering into a 5-year interest rate swap where it would pay a floating rate (3-month LIBOR) and receive a fixed rate.

This strategy aims to capitalize on the expected decline in interest rates while potentially reducing the company's overall cost of debt.

In addition, XYZ is also considering a currency swap due to its operations in Europe, which generates significant cash flows in euros. The company is concerned about foreign exchange risk and is evaluating how a currency swap could help mitigate this risk while also accommodating its funding needs in U.S. dollars.

Discuss the implications of these swap strategies for XYZ Corporation, addressing both the interest rate swap and the currency swap, including potential benefits, risks, and consideration of the market conditions. Your answer should provide a comprehensive analysis of how these strategies would align with XYZ's overall financial risk management objectives.