What are Currency Swaps?

In todays video we learn about currency swaps.
These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. amzn.to/2WIoAL0
Check out our website www.onfinance.org/
Follow Patrick on twitter here: / patrickeboyle
What are currency swaps?
A currency swap is a financial derivatives agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal and interest in another currency.
At the inception of the swap, the equivalent principal amounts are exchanged at the spot rate.
During the length of the swap each party pays the interest on the swapped principal loan amount.
At the end of the swap the principal amounts are swapped back at either the prevailing spot rate, or at a pre-agreed rate such as the rate of the original exchange of principals. Using the original rate would remove transaction risk on the swap.
Currency swaps are used to obtain foreign currency loans at a better interest rate than a company could obtain by borrowing directly in a foreign market or as a method of hedging transaction risk on foreign currency loans which it has already taken out.

[@sellisali974]

I ended zoning out and instead counting how many times Patrick blinked. 😂

[@Peter_Baelish]

Thank you mr Robot.

[@Solemme]

You've come a long way Patrick. A long way. Good job and thanks for sticking to this medium over the years.

[@CYQ776]

Haha, I bought his book 2 years ago and didn't know it till now!

[@rahulseth2007]

Still I am able understand so thank you

[@pattrick63]

Can you use currency swaps to track currency movement on a spot chart?

[@GP-qb9hi]

Did you watch the video?

[@devilex121]

In case you didn't find an answer elsewhere, yes but not necessarily track. Through the currency swaps market, you can infer the implied rate for a given currency pair. Put differently, the currency swaps market will give you the future exchange rate as expected by the market. Naturally, this should be practically identical to realised exchange rates (on the usual currency markets) as any discrepancy would be arbitraged away.

[@Piingzi]

I couldn't concentrate because you were very robotic - a bit more charisma is needed?

[@Piingzi]

On second watch some of the explanations are actually useful but it may as well be written down and not in a video (if the video is just blank facial expression reading text)

[@adi.olteanu.1982]

I didn't understand shit..... So.... If i have a loan of 1 mil USD and i want to exchange it to EURO, someone is taking my 1 mil USD and give me 0.9 mil EURO........ RIGHT? And if MAYBE someone needs 1 mil USD that someone will trade ut for YEAN let say? And maybe hoping to close the circle with other currencies, all of this without making a profit?

[@kishorevenu9297]

Please explain back to back trades thanks 🙏

[@petar5688]

If I have euros and need dollar, If I want to make currency swap contract would I get dollars and give euros at the same date or no?

[@Matthew-rs4hb]

I think he's reading straight from the book and not really explaining anything. IF the book is that dry, I probably wouldn't buy it.

[@bhuvanmg6069]

Are you a robot or human!