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Cross Currency Swap

Product Characteristics

  1. It refers to the swap of principles and interests among two different currencies at the same time. According to the transaction criteria and foreign exchange rate agreed by both parties, during the agreed upon period, the principles of different currencies and the interest income or expense generated from the principle are swapped. For the principle of the cross currency swap, principle swap occurs typically at the beginning and the end of the trading period. In addition, a fixed foreign exchange rate is applied to the principle swap at the begging and end of the period; therefore, it is able to prevent foreign exchange rate risk arising from the swap of principle. Furthermore, for the analysis of the interest, it can be treated as interest swap among different currencies during a set of period, which can be generally classified into three main interest swap types of fixed to fixed, fixed to floating or floating to floating etc.

Use Timing

  1. Through cross currency swap, corporate and bank can swap principles and interest income generated from the principle in different currencies, such that it is able to prevent corporate’s foreign exchange rate risk and interest rate risk, and it can be further used as a tool for fund allocation.