Currency Swap

An arrangement under which two companies exchange agreed amounts of two different currencies at agreed interest rates for a set period. In some currency swaps the interest rate on one sum of money is fixed and the other is a floating rate, in others both are fixed or both floating. At the end of the period the money is returned. This contrasts with interest rate swaps where the principal is not exchanged. Currency swaps are often not shown on company's balance sheets as they are classified as foreign exchange transactions.