BANKING AFFAIRS

Detailed explanation-1: -It is an agreement between two parties to exchange obligations in different currencies at the beginning, during the tenure and at the end of the transaction.

Detailed explanation-2: -A currency swap, sometimes referred to as a cross-currency swap, involves the exchange of interest-and sometimes of principal-in one currency for the same in another currency.

Detailed explanation-3: -What is a Currency Swap Contract? A currency swap contract (also known as a cross-currency swap contract) is a derivative contract between two parties that involves the exchange of interest payments, as well as the exchange of principal amounts in certain cases, that are denominated in different currencies.

Detailed explanation-4: -Interest rate swaps involve exchanging cash flows generated from two different interest rates-for example, fixed vs. floating. Currency swaps involve exchanging cash flows generated from two different currencies to hedge against exchange rate fluctuations.

Detailed explanation-5: -Most people are familiar with the nominal exchange rate, the price of one currency in terms of another. It’s usually expressed as the domestic price of the foreign currency. So if it costs a US dollar holder $1.18 to buy one euro, from a euro holder’s perspective the nominal rate is €0.85 per dollar (that is, 1/1.18).