Swaps

In this lesson

1. 0:00 Introduction to swaps and forex swaps
2. 0:13 How forex swaps work step by step
3. 0:54 Benefits of using forex swaps
4. 2:20 Currency swaps explained
5. 3:02 How currency swaps work step by step
6. 3:30 Key benefits of currency swaps

About this lesson

You'll discover the key differences between short-term forex swaps (which involve exchanging currencies and reversing the exchange later) and longer-term currency swaps (which include ongoing interest payments in different currencies). Through worked examples of each method, you'll understand when companies use swaps for hedging, accessing foreign markets, and optimising borrowing costs—practical tools that appear in your FM, AFM, and F3 exams. Both swap types follow a straightforward structure: parties agree on an initial exchange at a set rate, then reverse or continue payments over time. Forex swaps provide flexibility for managing short-term exposure and accessing currencies without entering open markets, whilst currency swaps offer long-term solutions for companies expanding internationally or seeking cheaper financing abroad. By mastering these mechanisms, you'll be able to explain why organisations choose swaps over direct market transactions and recognise when they're the right hedging tool—essential knowledge for case study and objective test questions on treasury and risk management.

Duration: 4m