(also known as a swap) refers to the exchange of two debt funds of the same amount and maturity, but with different currencies, followed by the exchange of currencies with different interest rates.
In simple terms, a swap is an exchange of debts in the same currency, while a currency swap is an exchange of debts in different currencies.
The terms of a currency swap are the same as those of an interest rate swap, including a quality premium and a contrary willingness to raise capital, as well as protection against risk.
The two sides swap currencies, and their respective debt-debt relationships do not change.
The exchange rate for the initial swap is calculated by agreement.
The purpose of currency swaps is to lower funding costs and protect against losses from the risk of exchange rate changes.
