ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In finance, a foreign exchange swap, forex swap, or FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward) and may use foreign exchange derivatives.

Detailed explanation-2: -A currency swap is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

Detailed explanation-3: -A foreign exchange swap (also known as an FX swap) is an agreement to simultaneously borrow one currency and lend another at an initial date, then exchanging the amounts at maturity. It is useful for risk-free lending, as the swapped amounts are used as collateral for repayment.

Detailed explanation-4: -There is, however, one strategy – currency arbitrage–where traders buy and sell at the same time at different prices to make money from the variation in prices at which two transactions are carried out.

Detailed explanation-5: -Arbitrage. Arbitrage is the simultaneous buying and selling of foreign. currencies with intention of making profits from the difference. between the exchange rate prevailing at the same time in. different markets.