• A currency swap is an agreement between two parties to exchange interest rates on their loans in different currencies.
  • The agreement may also provide for the exchange of the principal amount of the loan.
  • The two main types of swaps are fixed-to-fixed-rate swaps and fixed-to-floating-rate swaps.
  • Currency swaps can help companies borrow at lower rates than those offered by local financial institutions.
  • They can also be used to hedge (or protect) the value of existing investments against the risk of exchange rate fluctuations.