Cross-Currency Swap

A cross-currency swap occurs when two parties agree to exchange their loans’ interest and principal, which are in two different currencies.

For example, a Canadian company may have taken out a loan in Indian rupees and an Indian company might have a loan in Canadian dollars. The two parties agree to exchange their loans, as long as they are of equal value and interest rates.

So why wouldn’t the Canadians go directly to an Indian bank for their loan? The Indians most likely could get more favorable rates on a rupee loan, and vice versa.