CURRENCY SWAP Meaning and
Definition
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A currency swap refers to a financial transaction between two parties, such as banks or corporations, to exchange the principal and interest payments of two different currencies over a specified period of time. It is essentially an agreement where two parties agree to exchange an equivalent amount of money, denominated in different currencies, at a predetermined exchange rate.
The primary motive for entering into a currency swap is to hedge against potential fluctuations or volatility in exchange rates. This is particularly beneficial for organizations involved in international trade or investment, as it allows them to mitigate the risk associated with currency fluctuations during the lifespan of the swap.
Currency swaps typically involve two distinct transactions: the exchange of principal amounts at the initiation of the swap, and the obligations to exchange interest payments during the contract period. The parties involved make periodic payments to each other based on the principal amount and prevailing interest rates, usually on a semi-annual or quarterly basis.
Currency swaps can vary in duration, with common timeframes ranging from months to years. They can also be structured as fixed-for-floating, floating-for-floating, or fixed-for-fixed swaps, depending on the specific requirements of the parties involved.
Overall, currency swaps serve as financial instruments that allow entities to manage exchange rate risk and secure more stable cash flows when conducting business or investing across different currencies.
Common Misspellings for CURRENCY SWAP
- xurrency swap
- vurrency swap
- furrency swap
- durrency swap
- cyrrency swap
- chrrency swap
- cjrrency swap
- cirrency swap
- c8rrency swap
- c7rrency swap
- cuerency swap
- cudrency swap
- cufrency swap
- cutrency swap
- cu5rency swap
- cu4rency swap
- cureency swap
- curdency swap
- curfency swap
- curtency swap
Etymology of CURRENCY SWAP
The word "currency swap" is a compound term consisting of two words: "currency" and "swap".
The term "currency" originated from the Latin word "currens", which means "in circulation" or "flowing". It refers to a medium of exchange used as a unit of money within a particular country or region. The word "currency" is commonly used to describe the money used in a specific country or area.
The term "swap" originated from the Middle English word "swap", which means "to strike, to exchange". It refers to an agreement between two parties to exchange one asset or liability for another. In finance, a swap is a derivative contract where two parties agree to exchange cash flows, assets, or liabilities over a specific period.
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