what is a currency swap 
a currency swap sometimes referred to as a cross currency swap involves the exchange of interest and sometimes of principal in one currency for the same in another currency interest payments are exchanged at fixed dates through the life of the contract it is considered to be a foreign exchange transaction and is not required by law to be shown on a company s balance sheet the basics of currency swapscurrency swaps were originally done to get around exchange controls governmental limitations on the purchase and or sale of currencies although nations with weak and or developing economies generally use foreign exchange controls to limit speculation against their currencies most developed economies have eliminated controls nowadays so swaps are now done most commonly to hedge long term investments and to change the interest rate exposure of the two parties companies doing business abroad often use currency swaps to get more favorable loan rates in the local currency than they could if they borrowed money from a bank in that country currency swaps are important financial instruments used by banks investors and multinational corporations 