Currency Swaps

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Permalink Reply by Daniel Chow on July 26, 2009 at 9:54pm

Have you tried looking at this elearning program:

http://www1.finance30.com/swaps

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Permalink Reply by Kamesh Kumar on February 13, 2010 at 11:39am

It is awesome site for those who have finance background and want to learn with the help of internet.
It teach everything in a simple and impressive way.

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Permalink Reply by preetam chandra on August 15, 2009 at 2:40am

Currency swap is used to hedge risks like transactional,translational etc...when there is an exposure to some other currency. Its a sort of OTC contract and in a plain vanilla CCS you enter in an agreement with a counterparty to give give him your periodic cash flows in your currency and he will give you cash flows in his currency .
Now the swap value ideally is zero at initiation, ie PV of all cash inflows = PV of all cash outflows. But in a normal scenario a market maker from whom you buy a swap will charge you a spread for this.
The value of the swap hence forth keeps on changing depending upon the currency movements.
The swap can be valued as a bond or a FRA.

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Permalink Reply by prathamesh.mallya on September 20, 2009 at 3:30pm

Attached below is the word doc on Currency swaps which gives the complete understanding of CS

Attachments:

• Currency Swaps.docx, 25 KB

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Permalink Reply by Kamesh Kumar on February 13, 2010 at 11:32am

Swap means you can take exchange. See example-Suppose a US-based company needing to borrow Swiss Francs, and a Swiss-based company needing to borrow a similar present value in US Dollars, could both reduce their exposure to exchange rate fluctuations by arranging any one of the following:
If the companies have already borrowed in the currencies each needs the principal in, then exposure is reduced by swapping cash flows only, so that each company's finance cost is in that company's domestic currency.
Alternatively, the companies could borrow in their own domestic currencies (and may well each have comparative advantage when doing so), and then get the principal in the currency they desire with a principal-only swap.

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Permalink Reply by Kamesh Kumar on February 13, 2010 at 11:36am

Basically currency swap is done by the central bank to reduce the currency risk. It is just like a diversification of money into different currencies so that your currency risk will be reduced according to your diversification.

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