The foreign exchange industry can be described as ups and downs, and investors will feel very excited when they are in it. However, there will also be a steady investment strategy in the investment industry. There is no need to worry about the depreciation of funds due to changes in exchange rates. Of course, exchange rate appreciation and investors It doesn’t matter, this is what the industry usually calls swaps. So what does swap mean and what kind of investment strategy is it?
What does swap mean
Foreign exchange swaps refer to the exchange of similar products. Foreign exchange swaps refer to currency exchange. For example, in a foreign exchange swap contract, A borrows X dollars from B, and B borrows the same amount of euros from A.
Currency swaps (also called currency swaps) refer to the exchange of debt funds with the same amount, the same maturity, and the same calculation method of interest rates, but different currencies, and currency exchanges with different interest amounts.
Then, there is a mutual repayment obligation between A and B: A must repay U.S. dollars, and B must repay Euros. On the agreed date, A will repay X’s dollar amount according to the futures exchange rate stipulated in the contract. Similarly, B repays X to the euro.
Swap refers to foreign exchange swap, it is an informal contract, mainly used for guaranteeing quality, using one currency to exchange for another currency, within a specified time, an investment method. A case can be used to introduce what is meant by swaps. Xiao Ming intends to do business abroad and needs U.S. dollars and RMB. In order to ensure that his personal funds will not be affected by the exchange rate, he will exchange 10,000 RMB for 5,000 U.S. dollars to a third party, Xiaohong. After that, USD 5,000 will be exchanged for RMB 10,000. During this period, the appreciation or depreciation of the U.S. dollar will not affect Xiao Mingyuan’s original capital. If Xiao Hong obtains income from it has nothing to do with Xiao Ming, this is a foreign exchange swap. I believe that people can clearly understand the meaning of swaps through this example.
What kind of investment strategy does a swap belong to?
Swaps are a kind of moderate and stable investment strategy. Investors get what they want during the period, and at the same time they must accept changes in exchange rate appreciation during the period. In the foreign exchange industry, people prefer not to apply this method, because investment is to face risks and obtain high returns from risks. This is the effect of maximizing idle funds. Otherwise, it will be in the maintenance stage. Cause a waste of capital resources. In the foreign trade industry, if it is a short-term investment suggestion, swap strategy can be used, especially when the exchange rate volatility is large, the risk taken will be reduced. The operation steps of swaps may be more troublesome and require two two-way operations to achieve asset preservation. However, this operation method will make investors lose the economy that may obtain economic benefits. Therefore, in the investment industry, investment returns and risks have always been managed in a proportional manner. High returns and high risks appear at the same time. To obtain high returns, it is bound to bear more economic pressure. In all investment methods, multiple methods should be mixed and used. Don’t put all investments in one project. Decentralization and multiple investment methods are the best investment portfolio.
The difference between currency swaps and foreign exchange swaps
Both have different initial exchange rates
The exchange rate of the initial swap of currency swaps is calculated at the agreed spot exchange rate. The purpose of currency swaps is to reduce financing costs and prevent losses caused by exchange rate fluctuations. Currency swap terms are the same as interest rate swaps, including the existence of quality plus code differences and the opposite willingness to raise funds. In addition, it also includes preventing exchange rate risks.
Forex swaps, the party that first exchanged currencies with high interest rates for foreign exchange swaps must compensate the other party. The amount of compensation depends on the difference in interest rates between the two currencies. Compensation can be reflected through maturity or personal exchange prices. Reflects the form of payment difference.
The two functions are different
Foreign exchange swaps can be used for advance settlement and sales of foreign exchange business, which solves the contradiction between advance settlement and sales of foreign exchange business that cannot be delivered in advance, and makes customers’ capital turnover more flexible.
Currency swap is a commonly used debt hedging tool. It is mainly used to control medium and long-term exchange rate risks. It converts debt or assets denominated in foreign exchange into another debt or asset denominated in foreign exchange to avoid exchange rate risks and reduce costs.
The above content is a related introduction to what swaps mean. Foreign exchange swaps are a common investment method that can ensure that personal assets are not affected by the market environment for a certain period of time. Whether it is appreciation or depreciation, it has nothing to do with investors. , You can get the initial funds, basically without taking any risks.