Exchange between two debt funds with the same amount and the same term but different currencies, and also exchange currencies with different interest amounts
synonymCurrency swap(Currency swap) generally refers to currency swap
Currency swap (also known as currency swap) refers to the exchange of two debt funds with the same amount, the same term, but different currencies, as well as the exchange of currencies with different interest amounts.In short, interest rate swap is the exchange of debt in the same currency, while currency swap is the exchange of debt in different currencies.The two sides of the currency swap swap currencies, and their respective creditor debtor relationship has not changed.The exchange rate of the initial swap is based on the agreedSpot exchange ratecalculation.The purpose of currency swap is to reduceFinancing costAnd preventionExchange rate changesLosses caused by risks.The conditions of currency swaps are the same as those of interest rate swaps, including the existence of quality overweight differences and opposite financing intentions. In addition, the conditions of currency swaps are the same as those of interest rate swapsexchange-rate risksPrevention.
③ Avoidexchange-rate risks, this is because the interchange passesForward contractTo fix the exchange rate.The disadvantage of this swap is the same as that of interest rate swap. There is also the risk of default or nonperformance of the contract. If so, the other party will inevitably suffer losses due to changes in interest rates and exchange rates
Currency swap
It should be noted here that currency swap and interest rate swap can be carried out separately or simultaneously.However, the operating principle is the same as the above single exchange.
Swap transactionIn addition to the above two forms of interest rate swap and currency swap, there are many other forms. Here are three.
The first step is to identify existingcash flow 。Swap transactionThe purpose ofConversion riskTherefore, the first thing is to accurately define the existing risks.
Currency swap
The second step is to match existing positions.Only when the position of the existing position is clear can the second step be carried out to match the existing position.Basically, all hedgers follow the same principle, that is, hedging creates the same risk as the existing position but in the opposite direction, which is what happens in swap transactions.The existing position is offset by another position with the same amount but in the opposite direction.Therefore, the existing risk is eliminated through matching or hedging.
The third step of swap transaction is to create the requiredcash flow 。If the hedger wants to convert the risk through the swap transaction, the purpose can be achieved by first offsetting and then creating in the first two steps of the swap.Matching the existing position and creating the required cash flow is the swap transaction itself. Identifying the existing position is not a swap transaction, but a part of the hedging process.
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Currency swap
The general practice of currency swap quotation is that the spot exchange rate is usually used for the exchange of principal at the beginning of the period, while the spot exchange rate is used for the exchange of principal at the end of the periodForward exchange rate。Forward exchange rate is based onInterest rate parity theory, calculate theInterest margin, usingPremiumorDecalThe forward exchange rate is obtained by adding or subtracting from the spot exchange rate.Another popular currency swap quotation method is that the principal swap adopts the spot exchange rate instead of the forward exchange rate.For interest exchange of currency swap, refer toCross-Currency Interest Rate Swaps Quote.
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Currency swap is a commonly used debt hedging tool, which is mainly used to control the medium and long termexchange-rate risksTo avoid exchange rate riskcost reductionThe purpose of.Early“Parallel loan”、“Back-to-back loan”It has similar functions.However, whether it is "parallel loan" or "back-to-back loan", it is still a loan behaviorBalance SheetNew assets and liabilities will arise.As an off balance sheet business, currency swap can achieve the same goal without affecting the balance sheet.
Currency swap
For example, the company has aJapanese yenLoan, the amount is 1 billion yen, the term is 7 years, and the interest rate isFixed interest rate3.25%, and the interest payment date is June 20 and December 20 of each year.Withdrawal on December 20, 1996, and return on December 20, 2003.
After the company withdraws money, it buys Japanese yendollar, for purchasingProduction equipment。The income from product export is in dollars, but not in yen.
From the above situation, we can see that the company's yen loans have exchange rate risk.Specifically, the company borrowed Japanese yen and used US dollars. On December 20, 2003, the company needed to convert its US dollar income into Japanese yen for repayment.Then if the yen appreciates,Depreciation of the dollar(Relative to the beginning exchange rate), the company will use more dollars to buy yen for repayment.In this way, there is exchange rate risk because the company's yen loans are borrowed, used and repaid in different currencies.
In order to control exchange rate risk, the company decided to make a transaction with BOCcurrency swap 。Both parties stipulated that the transaction took effect on December 20, 1996 and expired on December 20, 2003, with the exchange rate of USD 1=JPY113.This currency swap is expressed as:
1. On the withdrawal date (December 20, 1996), the Company exchanged principal with BOC:
The company withdraws from the loan lineLoan principal, paid toBank of ChinaBank of China shall pay the Company the corresponding US dollars at the agreed exchange rate.
2. On the interest payment date (June 20 and December 20 of each year), the Company exchanged interest with BOC:
Bank of China in yenInterest rate levelPay interest in Japanese yen to the company, and the company will pay interest in Japanese yen to the lender, and pay interest in US dollars to the Bank of China at the agreed interest rate level in US dollars.
3. On the maturity date (December 20, 2003), the Company re exchanged principal with BOC:
Bank of China shall pay the principal in Japanese yen to the Company, and the Company shall return the principal in Japanese yen to the lender, and at the same time, pay the corresponding US dollars to Bank of China at the agreed exchange rate.
Currency swap
It can be seen from the above that at the beginning and end of the period, the Company and Bank of China exchanged principal at the same exchange rate (USD1=JPY113) specified in advance, and during the loan period, the Company only paid interest in US dollars, while the interest in Japanese yen earned was just used to restore Japanese yenLoan interestSo that the company can completely avoid futureExchange rate changesRisk.
There are several points to be explained about currency swap:
The interest rate form of currency swap can be fixed for floating, floating for floating, or fixed for fixed.The term of main foreign currencies can generally be 10 years.
The exchange rate specified in the currency swap can be usedSpot exchange rate(Spot Rate), you can also useForward exchange rate(Forward Rate), any other level can be agreed by both parties, but the interest rate level corresponding to different exchange rate levels will be different.
In currency swap, the initial principal swap can be omitted, that is, step a in the above example can be omitted, but the corresponding US dollar interest rate level may be different.In this way, the currency swap business can still be used to manage the exchange rate risk for those loans that have been withdrawn.
Currency swap - product features
1. The starting amount of currency swap is generallyequivalence5 million dollars, or according to the actual needs of customers.
3. Once a currency swap transaction is conducted, it is generally irrevocable or terminated in advance.
Swap right
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Swap rightIs an interest rate swap with an option structure orcurrency swap 。Specifically,Options TradingBoth parties reach an agreement on all relevant contents of an interest rate swap or currency swap transaction, but the option buyer is entitled to（European option）Or in the future（American option ）To determine whether the swap transaction is effective.As the price of obtaining this right, the option buyer needs to pay a certain amount ofService Charge。
With this product, the debtor can obtain a more flexible protection on the premise of paying a certain fee, that is, when the market develops in an adverse direction, it can make the swap transaction take effect according to the pre agreed level, thus locking the risk;When the market conditions develop in a favorable direction, you can choose not to exercise options to lock in risks at a more favorable time.
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Unlike interest rate swaps, currency swaps exchange principal, which can be seen as a combination of bonds in different currencies, and then add aforeign exchange marketTransactions.
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In 1981, due to the sharp appreciation of the US dollar against the Swiss franc (SF) and the Federal deutsche mark (DM), there was a certainExchange differences，Salomon Brothers utilizeforeign exchange marketExchange differences in andWorld BankAndIBMDifferent needs of the company are reached through negotiationSwap agreement。This is aFixed interest rateThe currency swap is conducted under the condition that there is no exchange of principal at the beginning of the transaction.
First copySwap contractIn the early 1980s, the swap market has developed rapidly since then.This famous swap transaction took place between the World Bank and IBM（IBM）The transaction was arranged by Solomon Brothers in August 1981.
The World Bank transferred its 290 million dollar fixed rate debt to IBM's existing Swiss francs and GermanymarkOfDebt swap。The main purpose of the swap is that the World Bank hopes to raiseFixed interest rateGerman mark and Swiss franc, but the World Bank can not directlyIssuance of bondsThe World Bank has AAA credit and can raise the most favorable US dollars from the marketBorrowing rateThe World Bank hopes to raise US dollars in exchange for debts of IBM in German marks and Swiss francs;IBM needs to raise a sum of US dollars. Due to the large amount, it focuses on anycapital marketThey raised German marks and Swiss francs by using their own advantages, and then exchanged them with the World Bankpreferential interest rateDollars.
Sino-Japanese
On October 26, 2018, with the approval of the State Council,People's Bank of ChinaAndBank of JapanSigned the Sino Japanese bilateral agreementLocal currency swap agreementWith an agreement scale of 200 billion yuanRMB/The agreement is valid for three years and can be extended with the consent of both parties.[1]
Korea and Japan
On June 29, 2023, South Korea and Japan reached an agreement to restart the currency swap, with the maximum exchange limit of US $10 billion.[2]
China and Mongolia
On August 1, 2023, the website of the People's Bank of China announced the renewal of the bilateral local currency swap agreement between the central banks of China and Mongolia (Cuba).The swap scale is 15 billion yuan/725 trillion Mongolian Tugrik, and the agreement is valid for three years.[3]
Zhongsha
In November 2023, with the approval of the State Council, the People's Bank of China and the Central Bank of Saudi Arabia signed a bilateral local currency swap agreement with a scale of 50 billion yuan/26 billion Saudi Riyals. The agreement is valid for three years and can be extended with the consent of both parties.[4]
