Foreign Currency Swaps

An FX swap (foreign exchange swap) is an agreement between two parties to simultaneously borrow and lend two different currencies for a specified period. 

The currencies are initially exchanged at the spot rate (near leg) and then re-exchanged at a predetermined forward rate at maturity (far leg). 

• Objective: Managing short term liquidity by enabling companies to obtain foreign currency financing without taking on foreign exchange risk.
  
  
• Cost: The spread between the near and far leg rates is driven by the interest rate differential between the two currencies.