“Useful-to-know Financial Terms #2: Currency Swap”

currency

“A swap that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on a company’s balance sheet. For example, suppose a U.S.-based company needs to acquire Swiss francs and a Swiss-based company needs to acquire U.S. dollars. These two companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are negotiable for at least 10 years, making them a very flexible method of foreign exchange. Currency swaps were originally done to get around exchange controls. (source: investopedia)”

Bank of England signed a currency swap deal with the People’s Bank of China at the weekend in a hope to make London a global center for trading the offshore renminbi. On the other hand, China expects that someday renminbi would rival the U.S. dollar’s dominance in global trade.

Related articles
http://www.ft.com/intl/cms/s/0/c063da4c-dbcc-11e2-8853-00144feab7de.html#axzz2X73k4GAP

http://online.wsj.com/article/SB20001424127887323683504578563803742809318.html?mod=rss_Page_One

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