How does a cross-currency basis swap work?

To do so, the companies take part in a cross-currency basis swap – customising the terms to their specific needs. The agreement is for a duration of 10 years. Meaning that at the end of the 10 years, the companies will exchange the same amounts back to each other, at the same exchange rate as the original transaction.

What is a currency swap?

One of the most commonly used currency swaps is when companies in two different countries exchange loan amounts. They both receive the loan they want, in the currency they want, but on better terms than they could get by trying to get a loan in a foreign country on their own.

What is a cross-currency swap?

Cross-currency swaps are an over-the-counter (OTC) derivative in a form of an agreement between two parties to exchange interest payments and principal denominated in two different currencies. In a cross-currency swap, interest payments and principal in one currency are exchanged for principal and interest payments in a different currency.