The name swap suggests an for of similar items. Foreign exchange swaps then forex imply the exchange of currencies, which is exactly what they are. In a foreign exchange swap, one party A borrows X amount of a currency, say dollars, from the other party B at the spot rate and simultaneously lends to B another currency dummies the same for X, say euros. In this case, each party has a repayment obligation to the other: A has to payback dollars; B has to payback euros. Explained maturity, A makes payments to B for X dollars at the forward rate as determined at the start dummies the contract. And B pays A his X amount of euros. Therefore, foreign exchange swap works like collateralized borrowing or lending to avoid exchange rate risk. A variety of market forex such as financial institutions and their customers multinational companiesinstitutional investors who want to hedge their foreign exchange positions, and speculators use foreign exchange swaps. About 38 percent of this daily activity was due to spot transactions, which means exchanging currencies for immediate for. The remaining 62 percent involved foreign exchange derivatives. When a financial instrument is that important, explained want to know about it. You can check out a very interesting report Dummies on Global Foreign Exchange Market Activity in prepared forex the Bank for International Settlements BIS, located in Basel, Switzerland on global foreign exchange activities both in spot and derivative markets. Toggle navigation Search Submit. Learn Explained Center Crafts Education Languages Photography Test Prep. RELATED ARTICLES How Foreign Exchange Swaps Work. International Finance For Dummies Cheat Sheet. Top Ten Traded Currencies of the World. Predict Changes in the Euro—Dollar Exchange Rate. How Foreign Exchange Swaps Work. Related Book International Finance For Dummies.