Foreign exchange swap

In banking terms, the spot sale of a currency with simultaneous forward repurchase or vice versa. Such operations are mainly used to hedge foreign exchange transactions. – At the central bank, spot purchases and spot sales with banks in a given currency, with simultaneous agreement of a forward countertransaction. The corresponding difference between the rates for the two maturities is known as the swap rate. – The ECB may conduct open market monetary policy operations in the form of foreign exchange swap transactions, in which the national central banks or the ECB itself buy (or sell) EUR against a foreign currency (xeno currency) on a spot basis and simultaneously sell (or buy) it forward. Any contracts are only concluded with banks that are able to smoothly execute large-volume foreign exchange transactions at any time. – See back-to-back loan, foreign exchange forward, Herstatt risk, matching, parallel loan, quanto, swap transaction, swap rate, Tomorrow next, interest rate swap. – Cf. Financial Stability Report 2011, pp. 58 ff (dollar refinancing gap of German banks; overview).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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