How do foreign exchange swaps work? |
woman writting in a paper with a pencil and a laptop on the table and a cup of coffee

What is a foreign exchange swap?

We value our editorial independence, basing our comparison results, content and reviews on objective analysis without bias. But we may receive compensation when you click links on our site. Learn more about how we make money from our partners.

Protect your loan from exchange rate fluctuation.

A foreign exchange swap is a contract between two parties that involves simultaneous borrowing and lending. The underlying mechanics can take a little time to understand, but the benefit of a swap is simple: You protect yourself from exchange rates that could flucuate.

What is a foreign exchange swap?

When you enter into a foreign exchange swap — also called as a forex swap or FX swap — you:

  • Borrow a currency from another party
  • Lend a second currency to that party at the same time.

An FX swap essentially comprises two contracts: a spot transaction that’s executed immediately and a forward transaction that’s executed at a specific future date.

For example, at the start of a swap contract, you might borrow euros from a business owner in France while lending him dollars. When the contract expires, you’ll return the euros to the business owner, and he’ll return the dollars to you.

Compare foreign exchange providers

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
USD 0 1 - 2 days USD 0.00 19.356 MXN 96,779 Offering no maximum and no minimum limit transfers with $0 fees. Go to site Show details
USD 1 1 - 2 days USD 0.00 19.348 MXN
Enjoy high maximum transfers into more than 20 currencies while saving up to 90% over local banks. Go to site Show details
USD 1 Within an hour USD 0.00 19.352 MXN 96,760 Use promo code 3FREE to send your first 3 transfers with no fee. Send to 110+ countries for bank-to-bank deposit, cash pickup or mobile top-up. Go to site Show details
USD 1,000 1 day USD 0.00 19.325 MXN 96,624 No-maximum limit transfers with competitive exchange rates for 100+ currencies. Go to site Show details
GBP 1,000 1 - 2 days USD 0.00 19.321 MXN 96,604 Exclusive: Minimum transfer of $1,000 for Finder readers (normally $5,000).
For larger transfers, get no transaction fees and no maximum send limits.
Go to site Show details
USD 5,000 1 day USD 0.00 19.336 MXN 96,682 Venstar will support you through the entire process of your international transactions, from start to finish. Go to site Show details
USD 50 1 - 2 days USD 0.00 19.338 MXN 96,692 Simple, zero-margin exchange rates, plus earn loyalty points on sign up, referral and every transaction. Go to site Show details

Compare up to 4 providers

Why is a foreign exchange swap useful?

When making any large transaction with foreign currency, you’re worried about losing value in your investment due to unfavorable movements in exchange rates. This is known as foreign exchange risk.

An FX swap comes with two big advantages:

  • Because you and another party trade currency, you both hold collateral over each other.
  • Because the exchange rate is determined beforehand, you know exactly how to pay back at the end of the swap agreement.

Who uses foreign exchange swaps?

Many parties use FX swaps, from financial institutions to institutional investors to multinational companies. They often use these swaps to protect their investments in foreign currencies. FX swaps are also commonly used by speculators.

What is a forex speculator?

A speculator is a person who trades currencies, commodities and other forex assets with a higher risk of losing their money in return for a higher-than-average possibility of substantial gains on their investment.

An example of a foreign exchange swap

Let’s say you’ve just sold merchandise worth 50,000 euros. You’ll need to pay your suppliers in France, but not right now — you can pay them in five months.

You operate in the United States, and you need dollars now. So you initiate an FX swap. You borrow dollars from a business owner in France and send her euros at the same time. Per your swap agreement, you’ll repurchase euros in five months at a set rate.

Are there any drawbacks?

FX swaps do include a few drawbacks:

  • There’s a chance one party might default on a swap contract.
  • Because exchange rates are agreed on beforehand, you could lose out on potential profit if the exchange rate were to move in your favor.

What does it mean to “default” on a contract?

When a contract is at risk of default, it means that there is a possibility that one of the parties may not fulfill its obligation specified in the contract.

Is there anything else I should know?

Foreign exchange swaps are different from currency swaps, which involve exchanging principal and interest payments from separate loans. Learn more about currency swaps.

Frequently asked questions

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site