Currency swap (also known as currency swap) refers to the exchange between two debt funds with the same amount, the same term and the same interest rate calculation method, but with different currencies, and also the currency swap with different interest amounts. Simply put, the currency swap agreement is an agreement signed by the central banks of the two countries, stipulating how many currencies can be exchanged at a certain exchange rate in a certain period of time. Currency swap agreements generally include: time, exchange rate, quantity and currency type.

In currency swap, the two sides of the swap do not borrow money from each other, but sell the money to each other through agreement and promise to exchange it on a fixed date in the future.

Extended data:

Function:

(1) arbitrage. Through currency swap, you can obtain assets with the required level and rate of return that cannot be obtained by direct investment, or obtain funds with lower cost than direct financing.

(2) Asset and liability management. Unlike interest rate swaps, currency swaps are mainly currencies that match assets and liabilities.

(3) Hedging currency risks. With the increasing globalization of economy, many economic activities have begun to spread all over the world. The company's assets and liabilities began to be denominated in multiple currencies. Currency swap can be used to minimize the exchange rate risk associated with these currencies, preserve the exchange rate risk of existing assets or liabilities, and lock in gains or costs.

(4) Avoid foreign exchange control. At present, many countries implement foreign exchange control, which makes remittance from these countries or borrowing from companies in these countries very expensive or even impossible. This problem can be solved by currency swap.

References:

Baidu Encyclopedia-Currency Swap Agreement