What does Dual Currency Swap mean?
A swap used to hedge dual currency bonds. In Dual Currency Swap, floating rate payments are exchanged for fixed rate payments along with an option to make payments in either one of two currencies at a preset exchange rate.
Futures Knowledge Explains Dual Currency Swap
In this swap, the issuer takes on exchange rate risk. The issuer starts to make payments in a currency which is not the base currency. For example, the company issue USD bond and then decides to swap it in Euro currency. Upon the maturity of the bond the issuer pays back the swap counterparty in Euro and get the equivalent amount in USD. This is done in anticipation that it will reduce cost.
A dual currency swap can also be used to protect against risks derived from issuing a dual currency bond.