Currency swap

This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (September 2007)

Foreign exchange

Exchange rates Currency band Exchange rate Exchange rate regime Fixed exchange rate Floating exchange rate Linked exchange rate

Markets Foreign exchange market Futures exchange Retail forex

Products Currency Currency future Non-deliverable forward Forex swap Currency swap Foreign exchange option

See also Bureau de change

A currency swap (or cross currency swap) is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped.

Contents 1 Structure 2 Uses 3 References 4 External links

Structure

Currency swaps can be negotiated for a variety of maturities of up to 30 years. Unlike a back-to-back loan, a currency swap is not considered to be a loan by United States accounting laws and thus it is not reflected on a company's balance sheet. A swap is considered to be a foreign exchange transaction (short leg) plus an obligation to close the swap (far leg) being a forward contract.

Unlike interest rate swaps, currency swaps involve the exchange of the principal amount. Interest payments are not netted (as they are in interest rate swaps) because they are denominated in different currencies. Further, many currency swaps are traded on organized exchanges - lowering counter-party risk, as evidenced by the bid-ask spread on most listings. See also John Hull. heo map

Uses

Currency swaps are often combined with interest rate swaps. For example, one company would seek to swap a cash flow for their fixed rate debt denominated in US dollars for a floating-rate debt denominated in Euro. This is especially common in Europe where companies shop for the cheapest debt regardless of its denomination and then seek to exchange it for the debt in desired currency.

For example, suppose a U.S.-based company needs to acquire Swiss francs and a Swiss-based company needs to acquire U.S. dollars. These two companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are negotiable for at least ten years, making them a very flexible method of foreign exchange.

Currency swaps were originally done to get around exchange controls.

During the global financial crisis of 2008 currency swaps were offered to other central banks by the Federal Reserve System including stable emerging economies such as South Korea, Singapore, Brazil, and Mexico.^[1]

References

External links

• Currency swap basics explained

v • d • e Derivatives market Derivative (finance) Options Terms: Strike price · Expiration · Volatility · Open interest · Pin risk · Risk-free rate Vanilla options: Option styles · Call · Put · Warrants · Fixed income · Employee stock option · FX · Bond option Exotic options: Asian · Lookback · Barrier · Binary · Swaption · Forward start option · Cliquet · Mountain range · Rainbow option · Compound option Options strategies: Covered call · Naked put · Collar · Straddle · Strangle · Butterfly · Iron condor Options spreads: Bull spread · Bear spread · Calendar spread · Vertical spread · Debit spread · Credit spread Valuation of options: Moneyness · Option time value · Put-call parity · Black-Scholes · Black · Binomial · Simulation Swaps Interest rate swap · Total return swap · Equity swap · Forex swap · Currency swap · Constant maturity swap · Basis swap · Volatility swap · Credit default swap · Variance swap · Inflation swap Other derivatives Equity derivative · Fund derivative · Credit derivative · CPPI · Interest rate derivative · Inflation derivatives · Real estate derivatives · PRDC · Futures contract · ELN · CLN

---

No comments have been added.

Your name:
City:
Country:	USA UK India Pakistan UAE Saudi Arabia Germany Afghanistan Albania Algeria Andorra Angola Antigua Barbuda Argentina Armenia Australia Austria Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium Belize Benin Bhutan Bolivia Bosnia Herzegovina Botswana Brazil Brunei Bulgaria Burkina Faso Burma Burund Cambodia Cameroon Canada Central African Rep Chad Chile China Columbia Comoros Congo Costa Rica Croatia Cuba Cyprus Czech Republic DR Congo Denmark Djiboutil Dominica Dominican Rep Ecuador Egypt El Salvador Eq Guinea Eritrea Estonia Ethiopia Fiji Finland France Gabon Gambia Georgia Germany Ghana Greece Grenada Grenadines Guatemala Guinea Bissau Guinea Guyana Haiti Honduras Hong Kong Hungary Iceland India Indonesia Iran Iraq Ireland Israel Italy Ivory Coast Jamaica Japan Jordan Kazakhstan Kenya Kiribati Kuwait Kyrgyzstan Laos Latvia Lebanon Liberia Libya Liechtenstein Lithuania Luxembourg Macedonia Macau Madagascar Malawi Malaysia Maldives Mali Malta Mauritania Mauritius Mexico Micronesia Moldova Monaco Mongolia Morocco Mozambique Namibia Nauru Nepal Neth Antilles Netherlands New Zealand Nicaragua Niger Nigeria North Korea Norway Oman Pakistan Panama Papua New Guinea Paraguay Peru Philippines Poland Portugal Puerto Rico Qatar Rawanda Romania Russia Sao Tome Saudi Arabia Senegal Serbia Seychelles Sierra Leone Singapore Slovakia Slovenia Solomon Islands Somalia South Korea South Africa Spain Sri Lanka St Kitts_Nevis St Lucia Sudan Suriname Sweden Switzerland Syria Taiwan Tajikistan Tanzania Thailand Togo Tonga Trinidad and Tobago Tunisia Turkey Turkmenistan Tuvala UAE Uganda Ukraine Uruguay Uzbekistan Vanuatu Venezuela Vietnam Western Samoa Yemen Yugoslavia Zaire Zambia Zimbabwe
Your comments:
Security check * (Please enter the number into adjoining box)