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Chapter 6
2.4 Cross currency swaps
A cross currency swap allows a company to swap a currency it currently
holds for a different currency for a fixed period, and then swap back at
the same rate at the end of the period.
Two elements
1 An exchange of principal in different currencies, which are swapped back at the
original spot rate.
2 An exchange of interest rates – the timing of these depends on the individual
contract.
The swap of interest rates could be ‘fixed for fixed’, 'floating for floating' or ‘fixed for
floating’.
The company entering the cross currency swap will end up with the currency it needs
and also the type of interest rate it prefers (fixed or floating).
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