A popular type of swap which involves exchanging principal and interest payments in one currency for principal and payments in another currency. In currency swaps, the principal needs to be determined in each of the currencies in the swap agreement. The two principals in each currency are usually exchanged at the outset and at the end of the life of the currency swap. Currency swaps can be used to transform loans in one currency to loans in another or to transform assets denominated in one currency to assets denominated in another based on interest rates expectations.
Currency swaps are modern alternatives of parallel loans and back-to-back loans.
