Currency swap

A swap exchanging interest payments in two currencies, usually with the notional amounts exchanged at the start and back at the end. Used to convert borrowing or investment from one currency into another.

Where you will meet it

Currency swap appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain the pricing of currency swaps, and work out their no-arbitrage value and say what it means
  CFA Level II · Derivatives and Risk Management

  “A currency swap exchanges notionals at the start and end and interest in two currencies in between.”

• Illustrate how currency forwards, futures and swaps alter the risk and return of a portfolio
  CFA Level III · Derivatives and Risk Management

  “A currency swap exchanges principal at the start and end, with interest in each currency in between, turning foreign-currency borrowing or assets into domestic ones.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary