A currency swap is a financial agreement between two parties to exchange principal amounts and interest payments in different currencies over a specified period.

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Typically, this involves:

• Exchanging a specific amount of one currency for an equivalent amount in another currency at the start of the contract, using a pre-agreed exchange rate.
• Periodically exchanging interest payments in their respective currencies during the life of the contract.
• Re-exchanging the original principal amounts at maturity, again at the pre-agreed rate.

Currency swaps are primarily used by companies and financial institutions to secure more favorable loan terms, hedge against exchange rate fluctuations, or gain access to foreign currencies for business operations.

These contracts can feature various structures, such as fixed-to-fixed, floating-to-floating, or fixed-to-floating interest rate payments, and are distinct from simple foreign exchange transactions or interest rate swaps.

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