ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Swap Market When there is a simultaneous borrowing and lending of two types of currencies between two investors, it is known as a swap transaction. Here, one investor borrows a currency and in turn, pays in the form of a second currency to the second investor.

Detailed explanation-2: -A currency swap is an agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal and interest in another currency. At the inception of the swap, the equivalent principal amounts are exchanged at the spot rate.

Detailed explanation-3: -There are two main types of currency swaps. The fixed-for-fixed rate currency swap involves exchanging fixed interest payments in one currency for fixed interest payments in another. In the fixed-for-floating rate swap, fixed interest payments in one currency are exchanged for floating interest payments in another.

Detailed explanation-4: -A currency swap is often referred to as a cross-currency swap, and for all practical purposes, the two are basically the same.