Foreign exchange swap
From ACT Wiki
A composite shorter term foreign exchange contract involving an agreement for;
1. An initial exchange of foreign currencies; and
2. A re-exchange at a later date.
A foreign exchange swap contract therefore involves two 'legs', a 'near leg' (either at spot or at a future date) and a 'far leg' (at a later future date).
At the near leg date, currency X is exchanged for currency Y at a pre-agreed near leg exchange rate. At the (later) pre-agreed far leg date, currency Y is re-exchanged for currency X at a (different) pre-agreed far leg exchange rate.
The uses of foreign exchange swap contracts include the transformation of short term borrowings or deposits from one currency into another.
See also
