{"id":2581,"date":"2010-03-02T22:19:50","date_gmt":"2010-03-02T16:49:50","guid":{"rendered":"http:\/\/www.niftylivecharts.com\/blog\/?p=2581"},"modified":"2010-03-21T18:37:18","modified_gmt":"2010-03-21T13:07:18","slug":"currency-swap","status":"publish","type":"post","link":"https:\/\/www.niftylivecharts.com\/blog\/currency-swap\/","title":{"rendered":"Currency Swap"},"content":{"rendered":"<p>A Currency Swap is 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.<\/p>\n<p>A <strong>currency swap<\/strong> is a foreign-exchange agreement between two parties to exchange aspects \u00a0of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency. Currency swaps are motivated by comparative advantage. A currency swap should be distinguished from a central bank liquidity swap.<\/p>\n<p>Currency swap maturities\u00a0are negotiable for at least 10 years, making\u00a0them a very flexible method of foreign exchange. Currency swaps were originally done to get around exchange controls.<\/p>\n<p><strong>Uses<\/strong><\/p>\n<p>Currency swaps have two main uses:<\/p>\n<ul>\n<li>To secure cheaper debt.<\/li>\n<li>To hedge against exchange rate fluctuations.<\/li>\n<\/ul>\n<h2>Structure<\/h2>\n<p>Currency swaps are over-the-counter derivatives, and are closely related to interest rate swaps. However, unlike interest rate swaps, currency swaps can involve the exchange of the principal.<\/p>\n<p>There are three different ways in which currency swaps can exchange loans:<\/p>\n<p>The most simple currency swap structure is to exchange the principal only with the counterparty, at a rate agreed now, at some specified point in the future. Such an agreement performs a function equivalent to a forward contract or futures.<\/p>\n<p>Another currency swap structure is to combine the exchange of loan principal, as above, with an interest rate swap. In such a swap, interest cash flows are not netted before they are paid to the counterparty because they are denominated in different currencies. As each party effectively borrows on the other&#8217;s behalf, this type of swap is also known as a back-to-back loan.<\/p>\n<p>Last here, but certainly not least important, is to swap only interest payment cash flows on loans of the same size and term. Again, as this is a currency swap, the exchanged cash flows are in different denominations and so are not netted.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A Currency Swap is 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 is a foreign-exchange agreement between two parties [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[7396],"tags":[6865,6863,6864],"class_list":{"0":"post-2581","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-swap","7":"tag-concept-of-currency-swap","8":"tag-currency-swap","9":"tag-currency-swap-concept","10":"entry"},"_links":{"self":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2581","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/comments?post=2581"}],"version-history":[{"count":0,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2581\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/media?parent=2581"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/categories?post=2581"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/tags?post=2581"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}