Wednesday, August 26, 2009

What is Currency swap?

What is Currency swap ?
A swap that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on the balance sheet.

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.

In a Currency swap, the holder of an unwanted currency exchanges that currency for an equivalent amount of another currency to improve the market liquidity of a currency owned or to obtain bank financing at a lower rate.

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