Currency Swap
Candlefocus EditorCurrency swaps are often used when companies are dealing with customers located in different countries and need to convert currency. Under a currency swap agreement, one party agrees to pay the other party a fixed or floating amount of one currency in exchange for an equal amount of another currency. The two parties agree to make the exchange at a specified rate, which is the exchange rate at the time of the agreement. At the end of the currency swap, both parties settle the transaction, exchanging the two currencies back to their original forms.
Currency swaps can be beneficial due to their flexible nature. They can either be a fixed rate or a floating rate, and the terms of the currency swap can be customized to meet each company’s needs. Additionally, for companies that don’t want to show the currency swap transaction on their balance sheet, it’s not required by law.
Overall, currency swaps are a great way for companies to hedge against foreign exchange risk and gain better access to capital. They provide flexibility in terms of interest rates and can be customized to fit the individual needs of the business. Additionally, they give the peace of the mind that the transaction doesn’t have to be reported on the balance sheet.