According to Reserve Bank of India (RBI), over $25 billion has been collected from special concessional swap windows for deposits by non-resident Indians and overseas foreign currency borrowings by banks.What is Currency Swap? A currency swap is a foreign-exchange agreement between two institutions to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency. Currency swaps are over-the-counter derivatives, and are closely related to interest rate swaps. However, unlike interest rate swaps, currency swaps can involve the exchange of the principal. What are the main uses of Currency Swap? Currency swaps have two key uses: To secure cheaper debt (by borrowing at the best available rate regardless of currency and then swapping for debt in desired currency using a back-to-back-loan). To hedge against (reduce exposure to) exchange rate fluctuations.
Posted on: Thu, 28 Nov 2013 00:53:00 +0000
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