FX Swap
Do you need one currency today and another in the future? An FX Swap can help bridge short-term liquidity needs while maintaining flexibility in managing your foreign exchange exposure.
Two offsetting currency exchanges with different settlement dates. In one transaction you sell a currency, and in the other you buy back the same currency and amount at a future date — this is an FX Swap (S).
FX Swap is a financial instrument that allows businesses to temporarily exchange one currency for another while simultaneously agreeing to reverse the transaction at a predetermined future date. This enables companies to manage short-term liquidity needs efficiently when they have a temporary shortage of one currency and a surplus of another.
By combining a spot transaction with a forward transaction, an FX Swap provides access to the required currency today while ensuring that the future exchange terms are known in advance. As a result, businesses can improve liquidity management without taking on additional exchange rate risk.
We’ll call you to discuss your requirements and recommend the most suitable FX solution for your business. Based on your cash flow profile, we’ll tailor the strategy to match your specific needs and objectives.
It’s Not Always About Buying or Selling. What Is an FX Swap?
An FX Swap consists of two linked foreign exchange transactions. In the first leg, the company sells one currency and buys another. At the same time, the reverse transaction is agreed for a future date under predetermined terms.
In other words, the company obtains the currency it needs immediately while simultaneously securing its future return through an offsetting exchange transaction.
Citfin Tip: The most common use of an FX Swap is to bring forward or postpone the settlement of an existing forward contract. If the maturity date of your forward is approaching and you either do not need to settle it yet or, conversely, need to settle it earlier than planned, an FX Swap can provide the solution. By using an FX Swap, you can adjust the final settlement date of the forward while maintaining your overall hedging strategy and avoiding unnecessary currency risk.
Typical Situations Where an FX Swap Makes Sense
Your company needs Czech koruna liquidity in the short term but currently holds euros and expects the situation to reverse in the future
You are waiting for a foreign currency receivable to be paid while already holding a surplus in another currency
You are considering selling a currency at the spot rate today, even though you know you will need to buy it back in the future
Instead of executing two separate spot transactions, a single FX Swap can provide a more efficient solution
You need to settle a forward contract earlier or later than its original maturity date.
You want to adjust the settlement date of an existing hedge without disrupting your overall FX strategy
You need to manage short-term liquidity between two currencies while maintaining certainty over future exchange terms
An FX Swap is particularly useful when you need to postpone or bring forward the settlement of a forward contract, or when you need to manage short-term liquidity requirements between two currencies efficiently.
How an FX Swap Works in Practice
| Standard Forward Contract | Buy EUR against CZK |
|---|---|
| Exchange Rate | 25,00 |
| Settlement Date | 31 January |
| EUR Amount | EUR 100,000 |
| CZK Amount | CZK 2,500,000 |
1) Existing Forward Contract – Your company has an existing standard forward contract under which you are scheduled to buy EUR and sell CZK on 31 January.
2) Change in Timing – Business circumstances change and you need access to the purchased euros earlier than expected — on 20 Januaryinstead of 31 January.
3) FX Swap – You contact your dealer and arrange an FX Swap. Through the swap, you sell the euros for settlement on 31 January and simultaneously buy them for settlement on 20 January.
| FX Swap | Sell EUR for CZK | Buy EUR for CZK |
|---|---|---|
| Exchange Rate | 25.00 EURCZK | 25.02 EURCZK |
| Settlement Date | 20 January | 31 January |
| EUR Amount | EUR 100,000 | EUR 100,000 |
| CZK Amount | CZK 2,500,000 | CZK 2,502,000 |
4) Cost of the Adjustment – The transaction carries a cost in the form of forward points, which reflect the interest rate differential between the two currencies and the change in settlement dates. In our example, the forward points amount to 0.02 CZK per euro (2 Czech hellers), resulting in the adjusted exchange rate of 25.02 EUR/CZK. This is the cost of bringing the settlement date forward and ensuring that the euros are available when needed.
An FX Swap is an ideal solution for businesses that need to manage short-term liquidity in a specific currency or adjust the settlement date of an existing forward contract.
Benefits of an FX Swap for Exporters and Importers
Gain immediate access to the currency you currently need
Both currency exchanges are agreed at the outset of the transaction
The terms of the future reverse exchange are known in advance
No need to maintain high balances across multiple currencies at the same time
Transaction parameters can be tailored to your specific business requirements
An FX Swap enables you to manage your cash flow with greater efficiency and flexibility
New to Currency Hedging? Here’s What You Need to Know
Arranging currency hedging is simpler than many businesses expect. Companies often assume that hedging foreign exchange risk involves a complex process, extensive administration, or sophisticated financial products. In reality, the objective is exactly the opposite — to provide greater certainty, stability, and control over future international payments.
Framework Agreement. A Framework Agreement is required before entering into forward contracts or other hedging transactions. Citfin will guide you through the entire process and help ensure everything is set up correctly.
LEI Code. European regulations require companies to hold a Legal Entity Identifier (LEI) in order to arrange currency hedging transactions. If your company does not yet have an LEI code, Citfin can assist you with obtaining one.
A Dedicated Dealer Who Understands Your Business. Your dedicated dealer will work with you on the practical aspects of managing currency risk, including market developments, hedge utilisation, settlement scheduling, potential rescheduling, and the overall hedging strategy. The relationship goes far beyond executing individual transactions — it is about the ongoing management of your company’s foreign exchange exposure.
Every Business Requires a Different Solution. An FX Swap may not always be the most appropriate solution for your needs. Perhaps a Standard Forward, an Average Forward, an FX Par Forward, an FX Option, or a tailored option strategy would be a better fit. Every company operates differently. Some businesses require fixed settlement dates, while others prioritise maximum flexibility. Since 1996, Citfin has helped companies design hedging strategies that reflect their actual payment flows, cash-flow requirements, and business models. We are not simply a provider of hedging products — we are a long-term partner in managing currency risk.
Important Risk Information. The principal risks associated with an FX Swap arise from future market developments and from the obligation to settle transactions according to the agreed terms. Before entering into an FX Swap, we will explain the product in detail, including how it works, its key features, and the risks involved, ensuring you can make an informed decision.
Not sure which type of forward contract is right for your business?
Leave us your contact details or speak directly with one of our specialists.
During a short consultation, we will assess whether a Standard FX Forward,
an Amortising FX Forward (AF), or another FX hedging solution is the most
suitable option for your business.
Tel.: +420 234 092 020
email: jiri.rys@citfin.cz
FAQ – Frequently Asked Questions
An FX Swap is a combination of two linked foreign exchange transactions. A company exchanges one currency for another and simultaneously agrees to reverse the transaction at a future date. FX Swaps are most commonly used to manage corporate liquidity and bridge temporary shortages of a particular currency.
A standard currency exchange is appropriate when a business needs a currency on a one-off basis. An FX Swap is typically used when a company needs access to a currency today but knows it will require that currency again in the future. A common example is bridging the period between receiving and paying international invoices.
A Forward Contract is primarily used to hedge a future exchange rate. An FX Swap is mainly designed to address short-term liquidity requirements in a specific currency. An FX Swap consists of two linked foreign exchange transactions, whereas a Forward Contract involves only a single future exchange.
Yes. This is one of the most common applications of an FX Swap. A company can obtain Czech koruna today to finance its operations while simultaneously ensuring that its euros will be returned at a future date under pre-agreed terms.
FX Swaps are widely used by exporters, importers, and businesses with regular international payments. They are particularly suitable for companies operating in multiple currencies and seeking to manage cash flow efficiently without taking on unnecessary foreign exchange risk.
The most commonly used currency pairs include EUR/CZK, USD/CZK, GBP/CZK, and PLN/CZK. FX Swaps can also be arranged for other currencies, depending on your company’s specific requirements and prevailing market conditions.
The answer depends primarily on your liquidity requirements and your planned future payments in different currencies. If you need access to one currency today but know you will require it again in the future, an FX Swap may be an effective solution. A currency specialist can assess your company’s needs and recommend the most appropriate approach.
Follow us
