Foreign exchange swaps

A foreign exchange swap is a combination of one in opposite directions Foreign exchange spot- and Forward foreign exchange deal or two currency forwards with different value dates in the same currency pair. In this way, they bring about an exchange of the differently denominated nominal amounts, which is limited by the swap term, at spot and forward exchange rates that usually differ between the business partners.
Both transactions of a foreign exchange swap are carried out at the binding exchange rates when the contract is concluded and always with the same business partner.

Since the currency risk in foreign exchange swaps is compensated for by the opposing movement of the transactions, only the swap rate risk remains as a component that can be traded in isolation.

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