A foreign exchange swap can be understood as a combination of a spot transaction and a forward transaction (fx forward) or as two forwards transactions.

foreign exchange swap (swap) = spot or forward + forward in the opposite direction

• A foreign exchange swap can be an effective means for companies with foreign currency receivables and payables at different times to avoid losses from adverse movements in the exchange rate.
• The maturity is typically within a year, with the possibility of a maturity beyond one year in individual cases.
• In the case of a foreign exchange swap that has not yet been settled, the client has the possibility to roll over his obligations. If such scrolling results in the original maturity date being rescheduled to a more distant date, it is called a rollover, while if it is to change it to an earlier date, it is called a rollback. The (total) nominal value of the scrolling transaction(s) shall not exceed the nominal value of the previous rollover transaction.
• A foreign exchange swap can be concluded for any currency pair for which the bank quotes a foreign exchange rate.

Benefits

• If market developments are favourable to you, you may be protected against arbitrary changes in the price of the underlying currency in an unfavourable direction.
• At your request, the currency swap can be closed with a reverse trade during the term with net settlement at maturity.
• By entering into a foreign exchange swap, you have the option to roll forward (further) or backward your existing, as yet unaccounted for, spot transactions, forward foreign exchange transactions and foreign exchange swaps.

Risks

• The transaction entails a performance obligation: you are obliged to buy/sell at the fixed exchange rate even in case of lower/higher maturity exchange rates than the fixed exchange rate, i.e. you may realise unlimited exchange rate losses.
• If you close the deal with a reverse trade during the term, you may incur unlimited losses depending on the current market situation.
  
  

Experts

If you would like to become a client of OTP Global Markets, feel free to contact us.

Useful documents

These documents in English language to the person concerned shall be for information purposes only. OTP Bank Plc shall fulfil its obligations imposed by the legal regulations or requirement of supervisory authority by the documents in Hungarian language.
In the event of any discrepancy between the English language and Hungarian language versions, the Hungarian language version shall prevail.

Information on the suspension of the market making obligation (available only in Hungarian)