A transaction that has two parts: The first is a
spot transaction, where something is bought or sold today, and the second is a
transaction in the future that reverses the previous trade. Forward swap
agreements occur in many different markets. Often forward swap transactions are
created to make a bet on the direction of interest rates in the two different
countries. Forward swap transactions are also conducted in the foreign exchange
market: A company operating in a foreign market may undertake a forward swap in
order to bring its profits back to its home country. Or, a central bank may
provide some of its own currency to another central bank in exchange for an
equal amount of its currency. Typically this is used when central banks
intervene in the foreign exchange market. The swap is reversed at a time
specified from the swap when the market pressure on the weaker currency ends.