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RobinsShaman t1_iz0z0xz wrote

An FX swap agreement is a contract in which one party borrows one currency from, and simultaneously lends another to, the second party. Each party uses the repayment obligation to its counterparty as collateral and the amount of repayment is fixed at the FX forward rate as of the start of the contract.

FX swaps have been employed to raise foreign currencies, both for financial institutions and their customers, including exporters and importers, as well as institutional investors who wish to hedge their positions. They are also frequently used for speculative trading, typically by combining two offsetting positions with different original maturities.

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D-Noch t1_iz10ydy wrote

Much appreciated.

Where exactly does the excess debt creep in, though?

Is it that every org is the 1st Party in a bunch of contracts (as well as the 2nd in others), and the 1st Party always borrows more than they lend (so they can the use that money for other purposes, be it speculative or otherwise)?

Or is this an issue of fluctuations over time in forex leading to certain debt being more difficult to repay?

Edit: was thinking about this- is it that the orgs use the repayment obligation OF the counter party, to the primary party, as collateral for additional borrowing?

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