Swap transaction to swap currencies for the specified period of time.
Advantages of swaps:
- Swaps can be used for cash flows regulation;
- Swaps can be used for extension of forwards;
- Swaps can be made even for 12 months period.
It is possible to make a swap for one month by giving Litas to the customer and receiving from him dollars in return. In a month the bank repays the customer dollars and the latter in his turn repays Litas to the bank. In theory, the currency is neither purchased nor sold, simply the swap is executed. In practice, swap transaction is implemented by two foreign exchange transactions: simple and forward. It is cheaper to make a swap instead of making a deposit in one currency and taking a loan in another currency.
