Currency Swaps
A currency swap is a foreign-exchange be in agreement among two parties to exchange aspects of a loan in one currency for being essentially equal to something aspects of an equal in net present value loan in another currency; see foreign exchange derivative. Currency swaps are over the counter derivatives and are prompted by comparative reward. A currency swap should be marked from a central bank liquidity swap. Currency swaps are intimately associated to interest rate swaps. All the same, not like interest rate swaps, currency swaps can require the exchange of the principal.
The simplest currency swap structure is to exchange only the principal with the counter-party at a specified point in the future at a rate be in agreements now. Such an be in agreement performs a function equivalent to a forward contract or futures. The cost of finding a counter party either directly or by means o an intermediary and drawing up an be in agreement with them, makes swaps more expensive than alternative derivatives and therefore rarely employed as a method to fix shorter term forward exchange rates. However for the longer term future, commonly up to 10 years, where spreads are wider for alternative derivatives, principal-only currency swaps are often employed as a cost effective way to fix forward rates. This type of currency swap is also referred as an FX-swap.
Another currency swap structure is to aggregate the exchange of loan principal, with an interest rate swap. In such a swap, interest cash flows are not netted before they are paid to the counter party, as they would be in a vanilla interest rate swap, since they are denominated in different currencies. As every party effectively borrows on the others behalf, this type of swap is also known as a back-to-back loan.
To trade only interest payment cash flows on loans of the same size and term. Again, as this is a currency swap, the ex altered cash flows are in different denominations and so are not netted. An instance of such a swap is the exchange of fixed-rate US dollar interest payments for floating-rate interest payments in Euro. This type of swap is also called as across currency swap or a cross-currency interest rate swap.
Currency swaps have two primary uses:
ñ To secure cheaper debt by borrowing at the best available rate no matter of currency and then swapping for debt in in demand currency using a back to back loan.
ñ To hedge against exchange rate fluctuations.
Currency Swaps - Online Tutoring - Assignment Assistance
We at Expertsmind.com offer Currency Swaps homework help, Currency Swaps free tutorials and assignment assistance and Currency Swaps based question's answers by help of qualified and experienced finance tutors. We make easy Currency Swaps based assignments and homework for you with conceptual Foreign Exchange Market theory.
ExpertsMind.com - Currency Swaps Assignment Help, Currency Swaps Homework Help, Currency Swaps Assignment Tutors, Currency Swaps Solutions, Currency Swaps Answers, Foreign Exchange Market Assignment Tutors