Foreign exchange swaps are when both parties agree to exchange currency A for a certain amount of currency B, and exchange currency B for the same amount of currency A at an agreed price on an agreed date in the future. Foreign exchange swaps have flexible and diverse forms, but they are essentially all Interest rate products. The first party who changes to a currency with a high interest rate must compensate the other party. The amount of compensation depends on the difference in interest rates between the two currencies. The method of compensation can be reflected in the exchange price at maturity or through separate payment of the interest rate difference. The form reflects.

What does foreign exchange swap mean

Renminbi foreign exchange forward transaction refers to a Renminbi foreign exchange transaction in which the parties to the transaction use the agreed foreign exchange currency, amount, and exchange rate to deliver on an agreed future date (more than two business days after the transaction date).

Renminbi foreign exchange swap transactions refer to two exchanges of domestic and foreign currencies in opposite directions agreed upon by the two parties to the transaction on two different delivery dates. In the previous currency exchange, one party uses foreign exchange to exchange RMB from the other party at the agreed exchange rate. In the latter currency exchange, the party then uses Renminbi to exchange for the same currency and amount of foreign exchange from the other party at another agreed exchange rate.

RMB and foreign exchange currency swaps refer to transactions in which not only the agreed amount of RMB and the foreign currency principal are exchanged within an agreed period, but also the interest of the two currencies are exchanged regularly.

RMB-foreign exchange option transaction refers to the right to buy or sell a certain amount of foreign exchange assets at an agreed exchange rate on a certain future trading day.

Features of foreign exchange swaps:

The customer entrusts the bank to buy currency A, sell currency B, and determine the reverse operation on another working day in the future, sell currency A of the same amount, and buy currency B. After the client has made a forward foreign exchange transaction, it needs to be delivered in advance for some reason, or cannot be delivered on time due to insufficient funds or other reasons. When a renewal is required, the delivery time of the original transaction can be adjusted by making a foreign exchange swap transaction.

A foreign exchange swap transaction can be regarded as composed of two foreign exchange transactions with the same transaction amount, different value dates, and opposite transaction directions. Therefore, a foreign exchange swap transaction has two value dates and two The agreed exchange rate level of the foreign exchange swap. In swap foreign exchange transactions, the customer and the bank convert one currency to another currency at an agreed exchange rate level, settle the funds on the first value date, and exchange the above two at another agreed exchange rate. The currency is converted in the opposite direction, and the funds are delivered on the second value date.

The most common swap transaction is a combination of a spot transaction and a forward transaction, which is equivalent to selling currency A and buying currency B while buying forward currency A and selling in the opposite direction. Forward foreign exchange transactions of currency B.

The impact of foreign exchange swaps on the foreign exchange market: The forward exchange rate in foreign exchange swaps is based on the forward exchange rate quoted in the market, which inevitably emphasizes the requirements for effective use of forward transactions-price stability and the depth of the relevant forward market And timely availability of quotations. This naturally requires that China’s foreign exchange forward market should continue to develop in a deeper direction. Therefore, the implementation of foreign exchange swap operations has brought another demand momentum to the further development of China’s forward foreign exchange market.

At the same time, the development of foreign exchange swap operations will also help improve the liquidity of forward foreign exchange transactions, and the two are complementary. With the gradual regulation of the forward foreign exchange market, a series of foreign exchange market derivatives such as foreign exchange futures and foreign exchange options will have a good objective pricing environment, which is conducive to the further development of China’s foreign exchange market and various foreign exchange hedging tools The application of China’s exchange rate formation mechanism is conducive to the early complete marketization of China’s exchange rate formation mechanism and the early realization of the free flow of capital in China.

How are foreign exchange swaps flattened?

Foreign exchange settlement refers to a transaction in which a bank sells or buys foreign exchange settlement positions through the foreign exchange market after handling foreign exchange settlement and sales business on behalf of clients or its own foreign exchange settlement and sales business to supplement foreign exchange sales positions.

The settlement and sale of foreign exchange by a customer to a bank cannot be called a “flat”. Only when a bank collects a certain amount of personal customer foreign exchange and transfers risks to the international foreign exchange market is a “flat”.