Currency Swap – What is a Currency Swap?

What is a Currency Swap?

Definition of Currency Swap: It is explained as an agreement made between two different parties for exchanging the main and fixed interest payments in a single currency for the fixed and principal are interest payments in other currency. The different parties involved in this contract exchange the two currencies in an immediate manner, so that the two parties can utilize the different currencies. They also create interest payments during the contract. Most of the time, one party has to pay a fixed rate of interest and the other on the opposite side needs to pay a floating rate of interest. One of the unique things about currency swap is that both the parties can pay floating or fixed charges. When the contract comes to an end both the parties again exchange the whole amount of swap. For instance, if two companies located in two different places need to attain currency in the reverse denomination. The maturities of currency swap can be easily negotiated for about 10 years, making it flexible for the foreign exchange. Originally, the currency swaps were utilized to attain controls on the exchange and to offer every party an access to the foreign currency to purchase in the foreign markets.