Swap Network

Definition of 'Swap Network'


A worldwide network of central banks that establish a reciprocal credit line relationship to temporarily swap currencies. The purpose of the swap is to give each bank the ability to simultaneously exchange a fixed amount of one another's currencies to both stabilize its own currency and improve liquidity conditions. While many repayment periods on swap lines are typically three months, debt holders can rollover their outstanding loans to extend the repayment terms.

Also known as a currency swap line or temporary reciprocal currency arrangement.

Investopedia explains 'Swap Network'


When a central bank swaps currencies it has the ability to then auction off those foreign currencies in overnight funds to private banks. The auction will then increase the supply of that foreign currency in that country and help lower the interest rate that banks charge (LIBOR) when lending to one another. This is an important benefit when liquidity is otherwise strained; the swap network can help increase banks and businesses' access to more-affordable financing often required to meet operating expenses.

Swap network arrangements were used extensively between countries worldwide during the 2008 international credit crisis to help ease liquidity restrictions in the foreign exchange market.


Filed Under: , ,

comments powered by Disqus
Hot Definitions
  1. Gross Debt Service Ratio - GDS

    A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment about whether a potential borrower is already in too much debt. Receiving a ratio of less than 30% means that the potential borrower has an acceptable level of debt.
  2. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  3. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  5. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  6. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
Trading Center