A forex swap is the simplest type of currency swap. It is an agreement between two parties to exchange a given amount of one currency for an equal amount of another currency based on the current spot rate.
The two parties will then give back the original amounts swapped at a later date, at a specific forward rate.
The forward rate locks in the exchange rate at which the funds will be swapped in the future, while offsetting any possible changes in the interest rates of the respective currencies.
Thus, this creates a hedge for both parties against potential fluctuations in currency exchange rates.
Forex SWAP - What is Swap Rate in Forex Trading?
This makes forex swaps very useful for multinational and exporting companies.
Central Bank Intervention
Currency intervention occurs when one central bank or more buys (or sells) a currency in the foreign...
Interest Rate Parity
The interest rate parity theory helps describe the relationship between foreign exchange rates and interest...
A forward contract is a non-standardized contract between two parties, who enter into an agreement to...
Stands for the London Inter-Bank Offered Rate.
It is used as a reference rate by banks to borrow from other...
Interest Rate Differential
In the foreign exchange market, the interest rate differential (IRD) refers to the difference in interest...