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cross-currency swap

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cross-currency swap

Agreement between two parties to exchange equivalent fixed amounts in two different currencies for a fixed period and then to re-exchange the amounts. For the duration of the swap each party pays interest on the received amount at the prevailing fixed or floating interest rate set in the country issuing the currency. At maturity the fixed principal amounts are re-exchanged.

The reasons for carrying out a currency swap might include: to obtain the use of a currency at a cheaper rate than might be possible through other means; to lock into a specific interest rate; for hedging purposes; or for investment speculation.



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In particular, Korean accounts provided a strong bid due to attractive terms in the cross-currency swap market.
Korea: Kepco squeezes pricing for $500 million bond by TendersInfo
The most dramatic rise came in cross-currency swaps, in which two parties agree to exchange streams of interest payments in different currencies for a certain period.
"A global game explodes: currencies" by Rees, Matthew / The International Economy
For non-USD issuers, there is also noise from the underlying foreign exchange (Fx) exposures unless everything is swapped back to USD fixed or floating via cross-currency swaps.
Missing the boat: when is it too late to start hedging? by Okochi, Jiro / Financial Executive
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