what is currency SWAP?

Answer 1

A 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.

Currency swaps can be negotiated for a variety of maturities up to at least 10 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.

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.

Answer 2

A currency swap is a kind of derivative where two parties agree to exchange a given amount of one currency for another. At the end of the term the two parties swap back the original amounts. this benefits the parties which have the hedge against foreign exchange fluctuations. currency swaps are normally combined with interest rate swaps. these are called cross-currency swaps (CCS)

Answer 3

A currency swap is a form of an interest rate swap, but with the cash flows in different currencies. An interest rate swap is a contract to exchange cash flow streams that might be associated with some fixed income obligations—say swapping the cash flows of a fixed rate loan for those of a floating rate loan.

Answer 4

The short answer:

Two parties sign a contract to exchange their own currency for the other for a certain length of time and agree to reverse the transaction at a later date. This will offset both corporations from exposure to the fluctuating market.