Currency Swap Law and Legal Definition
Currency swap is an agreement to exchange one currency for another at an agreed exchange rate. The parties to the contract exchange the principal of two different currencies immediately, so that each party has the use of the different currency. They also make interest payments to each other on the principal during the contract term.
In a currency swap, the holder of an unwanted currency exchanges that currency for an equivalent amount of another currency to improve the market liquidity of a currency owned or to obtain bank financing at a lower rate. Swaps are technically borrowings, but they are not ordinarily disclosed on the balance sheet.
