CURRENCY SWAP-- flat rate , fixed rate (foreign exchange)
Definition of 'Currency Swap'A swap that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on a company's balance sheet.
|A currency swap is a foreign-exchange agreement between two institute to exchange aspects (namely the principal and/or interestpayments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency; see foreign exchange derivative. Currency swaps are motivated by comparative advantage. A currency swap should be distinguished from acentral bank liquidity swap.|
A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments. Variable rate loans, by contrast, are anchored to the prevailing discount rate.
A fixed interest rate is based on the lender's assumptions about the average discount rate over the fixed rate period. For example, when the discount rate is historically low, fixed rates are normally higher than variable rates because interest rates are more likely to rise during the fixed rate period. Conversely, when interest rates are historically high, lenders normally offer a discount to borrowers to fix their interest rate over time, as rates are more likely to fall during the fixed rate period.
Some fixed interest loans - particularly mortgages intended for the use of people with previous adverse credit - have an 'extended overhang', that is to say that once the initial fixed rate period is over, the person taking out the loan is tied into it for a further extended period at a higher interest rate before they are able to redeem it.
Investopedia explains 'Currency Swap'For example, suppose a U.S.-based company needs to acquire Swiss francs and a Swiss-based company needs to acquire U.S. dollars. These two companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are negotiable for at least 10 years, making them a very flexible method of foreign exchange.
Currency swaps were originally done to get around exchange controls.
A flat fee, also referred to as a flat rate or a linear rate, refers to a pricing structure that charges a single fixed fee for a service, regardless of usage. Rarely, it may refer to a rate that does not vary with usage or time of use. Another term used is "flate", a hybrid of "flat" and "rate".
CURRENCY SWAP-- flat rate , fixed rate (foreign exchange) Reviewed by sambasivan srinivasan on 11:53:00 AM Rating: