foreign exchange swaps

A foreign exchange swap is a financial agreement between two parties to exchange currencies for a specific period. Initially, one party gives a certain amount of its currency to another in exchange for a specified amount of the other party's currency. After the agreed period, they swap the currencies back at a predetermined exchange rate. This arrangement helps manage currency risk, provides liquidity, and can aid in hedging against currency fluctuations. Businesses and financial institutions often use swaps to optimize their currency holdings and manage cash flow in different currencies.