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. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  2. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  3. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  4. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  5. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  6. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
Trading Center