Fx Swap

A Foreign Exchange (FX) Swap is a financial instrument used to exchange two currencies at a pre-agreed rate on an initial date and reverse the exchange at a future date using a different rate, also agreed upon at the outset. It combines a spot transaction (immediate currency exchange) and a forward contract (future currency exchange) to manage short-term currency exposure, optimize liquidity, or hedge against exchange rate fluctuations. The difference between the rates reflects the interest rate differential between the two currencies, often used by businesses, banks, and investors to manage risk or achieve funding in a specific currency.