Key Financial Market Concepts, 2nd Edition

Currency Swap

Definition

A currency swap is an exchange of a series of cashflows in one currency for a series of cashflows in another currency, at agreed intervals over an agreed period.

How is it used?

A currency swap – or ‘currency and interest rate swap (CIRS)’ or ‘cross-currency interest rate swap (CCIRS)’ – involves an exchange of cashflows, usually largely analogous to those in an interest rate swap but in two different currencies. For example, a company might establish – or have already established – a borrowing in one currency, which it wishes to convert into a borrowing in another currency. The transaction is the conversion of a stream of cashflows in one currency into a stream of cashflows in another currency.

It is possible to swap ...