Cross-Currency Swap

A transaction where two parties exchange cash flows in different currencies. Usually the cash flows are fixed to a notional amount, which can also be exchanged. The parties will fix an exchange rate or peg each payment to the current exchange rate. At the end of the swap period, the two parties often exchange the cash amounts back. Organizations whose cash flow and expenditures do not occur in the same currency especially benefit from such trades, which hedge against turbulence in exchange rates.