Currency Swap - Agreement to Exchange a Currency in the Future

What is a Currency Swap?

A currency swap is an agreement between two parties to exchange a currency after a specified period of time. Maturities for currency swaps can go up to 30 years in the future. In most currency swap agreements, one party will pay a fixed interest rate, while another will pay a floating exchange rate. Currency swap maturities are negotiable for 10 years, making it one of the most flexible forms of currency exchange. Currency swaps are similar to interest rate swap, except the cash flows are in different currencies, so they can’t net. Instead, full principle and interest rate payments are exchanged without any form of netting.