<P> In finance, a currency swap (more typically termed a cross-currency swap (XCS)) is an interest rate derivative (IRD). In particular it is a linear IRD and one of the most liquid, benchmark products spanning multiple currencies simultaneously . It has pricing associations with interest rate swaps (IRSs), foreign exchange (FX) rates, and FX swaps (FXSs). </P> <P> A cross-currency swap's (XCS's) effective description is a derivative contract, agreed between two counterparties, which specifies the nature of an exchange of payments benchmarked against two interest rate indexes denominated in two different currencies . It also specifies an initial exchange of notional currency in each different currency and the terms of that repayment of notional currency over the life of the swap . </P> <P> The most common XCS, and that traded in interbank markets, is a mark - to - market (MTM) XCS, whereby notional exchanges are regularly made throughout the life of the swap according to FX rate fluctuations . This is done to maintain a swap whose MTM value remains neutral and does not become either a large asset or liability (due to FX rate fluctuations) throughout its life . </P>

An agreement to exchange two currencies is called a(n)