Reciprocal Currency Arrangement

DEFINITION of 'Reciprocal Currency Arrangement'

Temporary arrangement between central banks to maintain a supply of a country's currency for trade with other central banks at a specified exchange rate. A reciprocal currency arrangement is only intended for overnight or short-term lending in order to maintain reserve requirements, liquidity and to keep financial markets functioning smoothly.

Also known as a swap line or swap network.

BREAKING DOWN 'Reciprocal Currency Arrangement'

Reciprocal currency arrangements exist to provide short-term access to foreign currencies. In the U.S., for example, a reciprocal currency arrangement entails both a spot (immediate delivery) transaction, where the Federal Reserve transfers dollars to a central bank and receives foreign currency in exchange; and a concurrent forward (future delivery) transaction, where the two central banks consent to reversing the spot transaction at a specified date. One purpose of a reciprocal currency arrangement is the support of a country's currency during periods of uncertainty or unusual market disruptions.

RELATED TERMS
  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  3. Reciprocal Currency

    In the foreign exchange market, a currency pair that involves ...
  4. Swap Network

    A worldwide network of central banks that establish a reciprocal ...
  5. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  6. Central Bank

    The entity responsible for overseeing the monetary system for ...
Related Articles
  1. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  2. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  3. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  4. Personal Finance

    The Currency Board: Understanding The Government's Bank

    Currency board, central bank - what's the difference? Find out more about this little-known monetary authority.
  5. Term

    What Is Contractionary Policy?

    A contractionary policy is a macroeconomic tool used to slow down an economy.
  6. Economics

    8 Harmful Side Effects of Continued European Quantitative Easing (Q.E.)

    Read about eight harmful side effects of European Central Bank's decision to boost its quantitative easing (QE) program and push interest rates even lower.
  7. Investing News

    What to Expect at April's FOMC Meeting

    The Fed won't raise rates Wednesday, but it's worth paying close attention to Yellen's comments about the future trajectory of rates.
  8. Economics

    Does Quantitative Easing (Q.E.) Add to Inequality?

    Learn about quantitative easing (QE) and whether or not this new central banking policy tool plays a role in helping or hindering income inequality.
  9. Economics

    How Do Central Banks Inject Money Into The Economy?

    Central banks inject money into the banking system, and remove money from it, through monetary policy actions.
  10. Economics

    Explaining the Federal Reserve System

    The Federal Reserve System is the central bank of the United States. It regulates monetary policy and supervises the nation’s banking system.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Answer >>
  2. What happens if interest rates increase too quickly?

    Learn about what happens if interest rates rise too fast and understand what goes into the Fed’s decision to adjust interest ... Read Answer >>
  3. When was the last time the Federal Reserve hiked interest rates?

    Learn about when the U.S. Federal Reserve last increased the federal funds target rate, which was in June 2006 after the ... Read Answer >>
  4. Do lower interest rates increase investment spending?

    Learn how the Federal Reserve Board uses monetary policy and the federal funds rate to influence long-term interest rates ... Read Answer >>
  5. How is the Federal Reserve audited?

    Learn how the Federal Reserve gets audited. Due to gridlock, the Federal Reserve has been forced to take on the role of stimulating ... Read Answer >>
  6. Who decides when to print money in the US?

    Learn who decides to print money in the United States. Many people relate credit creation, which is the Fed's job, with printing ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center