Currency Swap
Short definition
A currency swap exchanges principal and interest in two currencies. It maps FX debt into a local-currency cash profile (or the reverse); the legal loan may stay as is.
Detailed explanation
Principal is exchanged at spot up front, reversed at maturity, and interest is swapped in between. Cross-currency basis prices the gap to interest parity; in a crisis the basis widens and cost jumps.
It shrinks the open FX book but adds counterparty, margin and unwind risk. A covenant ban on derivatives or a collateral cap can shut the tool.
Why it matters for the CFO
Offshore FX funding can look cheap and still create an FX gap; a currency swap maps all-in toward local rates and transfers the FX risk.
How to read it
All-in = FX margin + swap basis + collateral. “Dollar rates are low” is not cheap if basis and FX cash are ignored.
Related calculators
Güven Sayılgan’s writing on this topic
The Foreign-Exchange Position Table and Its Use in Currency-Risk Management
The foreign-exchange position table brings together a firm’s foreign-currency assets, liabilities and cash flows by currency and maturity, so that net exposure,
4 min read
Read → FinansThe Role of USD/TRY, EUR/TRY and the Real Effective Exchange Rate in Corporate Financial Management Decisions in Türkiye
For companies operating in Türkiye, USD/TRY, EUR/TRY and the real effective exchange rate are complementary indicators; the CFO should read them together for co
6 min read
Read → FinansIs the Credit Interest Rate of Turkish Companies Determined in New York and Tokyo?
Part of a Turkish firm’s financing cost is set in Ankara; another part is, in practice, determined in New York and, increasingly, in Tokyo. Developments in 2026
6 min read
Read →Read these first
Related terms
What to learn next
Definitions are educational. They are not investment, credit or tax advice.