Currency Swap Definition
A currency swap is an agreement between two parties to exchange interest payments and principal in different currencies. The agreement is made at an agreed-upon exchange rate and specifies the terms of the swap, including the length of time for which the swap will be in effect.
The most common type of currency swap is the plain vanilla swap, which involves the exchange of a fixed interest rate for a floating interest rate, or vice versa. In a cross-currency basis swap, two floating rates are swapped. Swaps can also involve the exchange of principal in one currency for principal in another currency.
