forward swap agreement - Investment & Finance Definition
A transaction that has two parts: The first is a spot transaction, where something is bought or sold today, and the second is a transaction in the future that reverses the previous trade. Forward swap agreements occur in many different markets. Often forward swap transactions are created to make a bet on the direction of interest rates in the two different countries. Forward swap transactions are also conducted in the foreign exchange market: A company operating in a foreign market may undertake a forward swap in order to bring its profits back to its home country. Or, a central bank may provide some of its own currency to another central bank in exchange for an equal amount of its currency. Typically this is used when central banks intervene in the foreign exchange market. The swap is reversed at a time specified from the swap when the market pressure on the weaker currency ends.Webster's New World Finance and Investment Dictionary Copyright © 2010 by Wiley Publishing, Inc., Indianapolis, Indiana.
Used by arrangement with John Wiley & Sons, Inc.