A currency swap involves the exchange of interest - and sometimes principal - in one currency for the same thing in another currency.
Companies doing business abroad often use currency swaps to get better rates on local currency loans than if they borrowed money from a local bank.
By law, currency swaps, which are considered a foreign exchange transaction, should not be reflected in the company’s balance sheet.
Changes in interest rates for currency swaps include a fixed rate for a fixed rate, a floating rate for a floating rate, or a fixed rate for a floating rate.