Cross Currency Swaps - What It Is, Examples&How To Calculate
| USD Interest Rate (Currency 1) | NZD Interest Rate (Currency 2) |
Party A (NZ, NZD) | 4.00% | 2.00% |
Party B (US, USD) | 3.50% | 2.50% Therefore, the cross-currency swap benefit is: [USD (4.00% - 3.50%)] - [NZD (2.00% - 2.50%] = 1.00% The Opportunities and Risks of a Cross-Currency Swap Before entering a cross-currency swap, two parties must evaluate and understand the opportunities and risks involved. The opportunities of a cross-currency swap:
The risks of a cross-currency swap:
A cross-currency swap or cross deal can help two parties lower borrowing costs, hedge against Forex volatility, and achieve pricing stability in an off-balance sheet transaction. Using an intermediary bank, sometimes referred to as a swap bank, will eliminate most risks involved in an OTC cross-currency swap. Both parties miss out on potential opportunity gains as they lock in interest and exchange rates, but cross-currency swaps are not for speculators. FAQs What is the difference between a currency swap and a cross-currency swap? A currency swap, or FX swap, involves two transactions, buying/selling at the spot rate and selling/buying at the forward rate, using available capital. A cross-currency swap involves both parties taking a loan, paying interest rates, and exchanging payments at fixed intervals for the contract duration. How does currency swap between countries work? Two central banks enter into a currency swap line agreement, exchanging an identical amount of their currencies. For example, the Bank of Japan and the National Bank of India can agree to swap the Japanese Yen and the Indian Rupee to fulfill their domestic Forex requirements. How many cross-currency pairs are there? The Forex market consists of hundreds of cross-currency pairs, but not all are suitable for a cross-currency swap, which depends on significant interest rate differentials. The DailyForex.com team is comprised of analysts and researchers from around the world who watch the market throughout the day to provide you with unique perspectives and helpful analysis that can help improve your Forex trading. |

Legal Disclaimer:
MENAFN provides the
information “as is” without warranty of any kind. We do not accept
any responsibility or liability for the accuracy, content, images,
videos, licenses, completeness, legality, or reliability of the information
contained in this article. If you have any complaints or copyright
issues related to this article, kindly contact the provider above.
Most popular stories
Market Research

- Daytrading Publishes New Study On The Dangers Of AI Tools Used By Traders
- Primexbt Launches Empowering Traders To Succeed Campaign, Leading A New Era Of Trading
- Wallpaper Market Size, Industry Overview, Latest Insights And Forecast 2025-2033
- Excellion Finance Scales Market-Neutral Defi Strategies With Fordefi's MPC Wallet
- ROVR Releases Open Dataset To Power The Future Of Spatial AI, Robotics, And Autonomous Systems
- Ethereum-Based Meme Project Pepeto ($PEPETO) Surges Past $6.5M In Presale
Comments
No comment