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   Currency Swap
   















 

C

Currency Swap

In its simplest terms, the counterparties to a currency swap exchange equal initial principal amounts of two currencies at the spot exchange rate. Over the term of the swap, the counterparties exchange fixed or floating rate interest payments in their swapped currencies. At maturity, the principal amount is reswapped, usually at a predetermined exchange rate. In contrast to the parallel loan structure which swaps have largely replaced, netting agreements usually limit the exposure of the parties to each other's credit to a single period net exchange and any increase in the 'residual' value of its side of the swap.

Glossary * C