What is a currency swap
Interest rate and currency swap, swap
Borrowers exchange the loans they have taken out in different currencies and thus the exchange rate risks with one another through internal agreements.
In contrast to interest rate swaps, the currencies of the loans or bonds exchanged are different.
(A) (application example). Currency swaps are used to hedge against currency risks, including very long-term currency risks. For example, an American investor A who wants to invest in the euro zone and wants to liquidate this investment after 10 years can work with an investor B from the euro zone who wants to invest in the USA for 10 years and then return the investment amount back to the euro zone, conclude a currency swap. For an application example, see Swaps, Chapter 3; see also currency management, each with references. (B) (Currency Swap, general definition) is a combination of the current exchange of currencies between two counterparties at a certain spot exchange rate with the agreement of the later binding exchange at a forward exchange rate already fixed today. Pure currency swaps are rare. The combined variant of an interest rate / currency swap, in which the interest payments are also included in the swap, is more common. See also currency management (with references).
See: Currency Swap
(English: currency swap). Currency exchange between two parties with different access to foreign exchange markets. Banks often act as intermediaries. Swap.
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