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Currency Swaps. 1Meaning CurrencySwapsrefertothearrangementwhereprincipaland interestpaymentsinonecurrencyisexchangedforsuch paymentsinanothercurrency.

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Presentation on theme: "Currency Swaps. 1Meaning CurrencySwapsrefertothearrangementwhereprincipaland interestpaymentsinonecurrencyisexchangedforsuch paymentsinanothercurrency."— Presentation transcript:

1 Currency Swaps

2 1Meaning CurrencySwapsrefertothearrangementwhereprincipaland interestpaymentsinonecurrencyisexchangedforsuch paymentsinanothercurrency. 2Features TheprincipalamountforboththeCompaniesareequalor almostequalbasedontheexchangerateprevailingonthedate ofstartingtheswaparrangement. 3Benefits Thiswillguardagainstexchangerateriskforboththeenterprises andeliminatesuncertainties,forboththeparties.

3 4Types: CurrencySwapscancategorizedbasedonhowinterestratesare structured- (a)FixedFor FixedCurrencySwap: TheinterestpaymentsexchangedarepayableunderFixed RateBasisforboththecontractingparties. (b)FixedforFloatingCurrencySwap: InterestpaymentsexchangedarepayableunderFixedRate BasisforpartyandFloatingRatebasistheotherparty. (c)FloatingforFloatingCurrencySwap: InterestpaymentsexchangedarepayableunderFloating RateBasisforboththeparties.However,thebaseforfixing thefloatingratesarethesameforboththeparties,i.e. LIBORorMIBORetc.

4 Acurrencyswapallowsthetwocounterpartiestoswapinterest ratecommitmentsonborrowingsindifferentcurrencies. Ineffectacurrencyswaphastwoelements: Anexchangeofprincipalindifferentcurrencies,whichare swappedbackattheoriginalspotrate. Anexchangeofinterestrates–thetimingofthesedepends ontheindividualcontract.

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