Swap Transaction: A swap transaction in the foreign exchange market is combination of a spot and a forward in the opposite direction. Thus a bank will buy DEM spot against USD and simultaneously enter into a forward transaction with the same counter party to sell DEM against USD against the mark coupled with a 60- day forward sale of USD against the mark. As the term ‘swap’ implies, it is a temporary exchange of one currency for another with an obligation to reverse it at a specific future date.
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