Swap rate

FX Swaps are a regular tool used by banks and financial institutions in the course of business. Such transactions however could also be used to maximize the utility of money capitalizing on the interest rate differentials affecting the different currencies.

A typical Swap involves two parts, a spot transaction to acquire the currency desired and a reversed forward transaction to revert back to the original currency. The complexity as such mainly limits the use of swaps to banks and other financial institutions that regularly take advantage of the differences in interest rate differentials.