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Foreign Exchange Swap

Introduction

A foreign exchange swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates.

It has two legs: a spot transaction and a forward transaction. Both legs are executed simultaneously for the same quantity, and therefore offset each other.

Features

Foreign Exchange Swap is a combination of foreign exchange spot and forward. It hedges the interest rate risk and foreign exchange rate risk, and helps clients to match the cash flows in the future for foreign assets or liabilities.

Currencies

USD, EUR, HKD, GBP, RMB and other major currencies.

Target Customers

Clients who have the need to hedge the exchange rate risk for the foreign currencies in/outflows, and already have a foreign currency account at the bank.

Process

1. Clients need to sign an ISDA (International Swaps and Derivatives Agreement) with the bank.

2. Client initiates an order to the bank, with trading details and spot/forward exchange rates. It doesn’t involve any upfront payment at the outset. The client can long or short the currency forward.

3. The client and the bank exchange their currencies with the agreed spot rate. At the maturity, they do the converse exchange at the predetermined forward rate.

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