Cross-currency swap

(1) There are three types of cross-currency swaps, i.e. those involving the exchange of flows on the basis of a fixed rate against a floating rate (cross-currency coupon swap or fixed-to-floating currency swap), of a floating rate against another floating rate (cross-currency basis swap or floating-to-floating currency swap), or of a fixed rate against another fixed rate (fixed-to-fixed swap or fixed-to-fixed currency swap). (2) A cross-currency swap consists in two reciprocal loan transactions on the same amount (the notional), but carried out in two different currencies, whose countervalue is identical to the initially established exchange rate. The counterparties agree to exchange, at specified future dates over the entire swap tenor, the principal and interest payments owing on the capital initially received, calculated in the same currency. (3) Unlike an interest rate swap, a cross-currency swap involves the exchange of the notional or principal amount in addition to the interest flows. To distinguish between them, the expression single-currency interest rate swap is sometimes used to designate the interest rate swap, while cross-currency interest rate swap is used for the cross-currency swap. (4) A cross-currency swap should not be confused with a foreign exchange swap, which is simply a spot exchange of equal principal amounts of two different currencies at a given date, followed by a forward offsetting transaction, with no exchange of interest flows.