What is a Currency Swap?
A currency swap is an agreement between two parties to exchange a currency after a specified period of time. Maturities for currency swaps can go up to 30 years in the future. In most currency swap agreements, one party will pay a fixed interest rate, while another will pay a floating exchange rate.
Currency swaps are agreements between two individuals or entities to exchange specified types and amounts of currencies. Along with the initial exchange of a specific amount of one currency for a specific amount of a different currency, the process of a currency swap normally also includes a series of recurring payments based on the cash flow performance of the two currencies. This makes a currency swap somewhat different from a currency exchange, in that the exchange normally involves simply exchanging currency at the most recent rate of exchange. The recurring payments that compose the second phase of a currency swap normally make use of both fixed and variable rates of interest. One party will agree to pay a fixed interest rate, while the second party will make interest payments based on a floating rate of exchange. However, it is possible to arrange a currency swap agreement where both parties pay recurring payments based on a fixed rate or a floating exchange rate. The final deter
A currency swap is an agreement between two parties to exchange a currency after a specified period of time. Maturities for currency swaps can go up to 30 years in the future. In most currency swap agreements, one party will pay a fixed interest rate, while another will pay a floating exchange rate. Currency swap maturities are negotiable for 10 years, making it one of the most flexible forms of currency exchange. Currency swaps are similar to interest rate swap, except the cash flows are in different currencies, so they can’t net. Instead, full principle and interest rate payments are exchanged without any form of netting.
A currency swap (CS) may be viewed as an “exchange of borrowings”, involving the exchange of principal and interest payments in one currency for principal and interest payments in another currency, in accordance with a pre-determined amortisation schedule. It is a contractual arrangement between two counter-parties in which one counter-party agrees to make payments in one currency to the second counter-party, in return for receiving payments in another currency from the latter. ICICI Treasury offers its clients the flexibility to move from a foreign currency (FC) liability to a Rupee liability or vice versa, through this mechanism. The CS could be structured in any of the following ways : • The Client pays fixed Rupee interest and receives floating FC interest. • The Client pays fixed Rupee interest and receives fixed FC interest. • The Client pays fixed FC interest and receives fixed Rupee interest. • The Client pays floating FC interest and receives fixed Rupee interest. TOP When are
