Swap
Short definition
A swap is a contract to exchange defined cash flows (rate, FX, principal) for a period. It changes the rate or currency profile without retiring the loan.
Detailed explanation
An IRS turns floating into fixed (or the reverse). A currency swap exchanges principal and interest in two currencies. A cross-currency swap is how FX debt is mapped into a local-currency cash profile.
Value marks to the forward curve; CSA margin and covenants (hedge restrictions, calls) create liquidity need. Unwinding early crystallises carry.
Why it matters for the CFO
When the loan is floating and the budget wants fixed, an IRS matches a long asset to a long liability. A currency swap shrinks open FX debt but adds counterparty risk.
How to read it
A swap does not retire debt; it changes the risk profile. All-in is swap spread + credit margin + collateral.
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Definitions are educational. They are not investment, credit or tax advice.