CURRENCY SWAPS

sunandaC

New member
CURRENCY SWAPS

Each entity has a different access and different long term needs in the international markets. Companies receive more favorable credit ratings in their country of domicile than in the country in which they need to raise capital. Investors are likely to demand a lower return from a domestic company, which they are more familiar with than from a foreign company. In some cases a company may be unable to raise capital in a certain currency.

Currency swaps are also used to lower the risk of currency exposure or to change returns on investment into another, more favorable currency. Therefore , currency swaps are used to exchange assets or capital in one currency for another for the purpose of financial management.

A currency swap transaction involves an exchange of a major currency against the U.S. dollar. In order to swap two other non-U.S. currencies, a dealer may need to arrange two separate swaps. Although, any currency can be used in swaps, many counterparties are unable to exchange their currencies due to a lack of demand.


Since currency swap transaction involves the exchange of two or more types of currencies, the actual exchange of principals takes place at the commencement and the termination of the swaps in addition to exchange of interest payments on agreed intervals. The exchange of principal and interest is necessary because counterparties may need to utilize the respective exchanged currencies.

The uses of currency swaps are summarized below:

 Lowering funding cost

 Entering restricted capital markets

 Reducing currency risk


 Supply-demand imbalances in the markets



As for interest rate swaps, many variants of the plain vanilla currency swaps were created to met some of the common financial management needs.
 Amortizing currency swaps

The notional principals of these swaps are scheduled to decrease over the life of the swaps. Therefore, principals are exchanged accordingly.


 Accreting currency swaps
The notional principals of these swaps increase periodically. Principals are exchanged as scheduled.

 Floating- for -floating rate currency swaps

As indicated by the name, this swap involves the exchange of a floating interest rate payment schedule in one currency against another floating interest rate payment schedule in another currency.
 

rosemarry2

MP Guru
CURRENCY SWAPS

Each entity has a different access and different long term needs in the international markets. Companies receive more favorable credit ratings in their country of domicile than in the country in which they need to raise capital. Investors are likely to demand a lower return from a domestic company, which they are more familiar with than from a foreign company. In some cases a company may be unable to raise capital in a certain currency.

Currency swaps are also used to lower the risk of currency exposure or to change returns on investment into another, more favorable currency. Therefore , currency swaps are used to exchange assets or capital in one currency for another for the purpose of financial management.

A currency swap transaction involves an exchange of a major currency against the U.S. dollar. In order to swap two other non-U.S. currencies, a dealer may need to arrange two separate swaps. Although, any currency can be used in swaps, many counterparties are unable to exchange their currencies due to a lack of demand.


Since currency swap transaction involves the exchange of two or more types of currencies, the actual exchange of principals takes place at the commencement and the termination of the swaps in addition to exchange of interest payments on agreed intervals. The exchange of principal and interest is necessary because counterparties may need to utilize the respective exchanged currencies.

The uses of currency swaps are summarized below:

 Lowering funding cost

 Entering restricted capital markets

 Reducing currency risk


 Supply-demand imbalances in the markets



As for interest rate swaps, many variants of the plain vanilla currency swaps were created to met some of the common financial management needs.
 Amortizing currency swaps

The notional principals of these swaps are scheduled to decrease over the life of the swaps. Therefore, principals are exchanged accordingly.


 Accreting currency swaps
The notional principals of these swaps increase periodically. Principals are exchanged as scheduled.

 Floating- for -floating rate currency swaps

As indicated by the name, this swap involves the exchange of a floating interest rate payment schedule in one currency against another floating interest rate payment schedule in another currency.

Hey dear,

Here I am uploading Study Perspectives on Currency Swaps - An Instrument of International Finance, so please download and check it.
 

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