A cross-currency swap which provides one of the parties with a partial protection of the final exchange notional. However, a Hanseatic swap is superior to its basic version in that it carries minimal exchange risk at maturity. It helps reduce or eliminate this risk at no cost while allowing its holder to lower interest rate payments. In so doing, a fraction of the upside potential need to be given up at the expense of financing a downside protection through this swap. The Hanseatic swap is generally suitable for short term arrangements as it doesn’t enable investors to take a long term view on exchange rates.
April 5, 2023