What is a currency swap? How businesses and banks borrow in other currencies
By SendPay Business · · 2 min read
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A currency swap is an agreement to exchange one currency for another now and swap them back later at an agreed rate. It lets a business or bank use another currency for a set time without taking on the risk of the exchange rate moving.
How an FX swap works
- Two parties exchange amounts in two currencies today at the spot rate.
- They agree the rate for swapping back on a future date.
- On that date, each returns the currency it received.
Cross-currency swaps
A cross-currency swap runs for longer, often several years. As well as swapping the amounts at the start and the end, the two sides pay each other interest in the currency they are holding during the term.
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Who uses them
Companies use swaps to fund overseas operations or to match income and costs in different currencies. Banks use them to manage their daily currency needs, and central banks set up swap lines with each other to supply currency, such as US dollars, when markets are under stress.
The risks
The main risk is that the other side fails to swap back. Swaps are complex contracts, usually used by larger firms with specialist advice.
Where SendPay fits
SendPay does not offer swaps, forward contracts or options. SendPay platforms include GBP, EUR and USD accounts and currency exchange under your own brand, powered by licensed partners.
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Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.