Currency and Cross-Border Swaps

Currency-linked swaps can exchange principal on two dates, exchange periodic interest cash flows across currencies, or settle a calculated difference without delivering a restricted currency. The cash-flow pattern, not the word “swap” alone, identifies the instrument.

Use Foreign Exchange Swap for a near currency exchange and later reversal, commonly used for temporary funding or moving a value date. Use Cross-Currency Swap for swaps that exchange cash flows in two currencies, usually including periodic interest and often principal.

Compare the Structures

What to Check

• currencies, notional amounts, principal exchanges, and payment direction;
• near, far, reset, fixing, payment, and maturity dates;
• fixed or floating benchmarks, spreads, day counts, and fallbacks;
• swap-point or cross-currency-basis quotation convention;
• collateral, netting, credit limits, termination, and close-out terms;
• settlement accounts, cut-off times, and payment-versus-payment availability; and
• whether the structure actually matches the funding, asset, liability, or hedge cash flows.

Common Mistakes

• Treating FX swaps and cross-currency swaps as synonyms.
• Confusing swap points with interest-rate basis points.
• Assuming matched notionals eliminate counterparty, funding, settlement, or rollover risk.
• Comparing basis or spread quotes without matching leg, benchmark, tenor, and collateral convention.
• Ignoring principal-payment obligations because a derivative is presented off balance sheet under a particular framework.

These pages are for financial education only. Currency-linked swaps can involve significant market, basis, counterparty, collateral, liquidity, operational, legal, and settlement risks. Nothing in this section is individualized investment, derivatives, accounting, tax, or legal advice.

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