Swap definition

A currency swap, or swap, is a foreign exchange transaction in which two parties agree to exchange one currency for another at a future date. The currencies are then exchanged immediately at an exchange rate adjusted to reflect the expected rate of the future date, known as a forward exchange rate.

Swaps are commonly used to hedge long-term investments involving a foreign currency. They’re often initiated between companies doing business abroad when one company is paid significantly later than when the service or product is delivered.