FX swaps, also known as foreign exchange swaps or currency swaps, are financial derivative contracts that allow two parties to exchange currencies for a predetermined period of time and then reverse the exchange at a later date. FX swaps are used by businesses, banks, and investors to manage currency risk and to access foreign currencies for investment or financing purposes.

In an FX swap, the two parties agree to exchange a fixed amount of one currency for another at an agreed-upon exchange rate, with the understanding that the exchange will be reversed at a specified date in the future. The exchange rate used in the swap is typically the spot rate, which is the current market rate at the time of the swap.

FX swaps are typically used to manage short-term currency exposure, such as when a company needs to make a payment in a foreign currency but does not have sufficient funds in that currency. By entering into an FX swap, the company can exchange its home currency for the foreign currency it needs, and then reverse the exchange at a later date when it has received the necessary funds.

FX swaps can also be used for longer-term financing or investment purposes, such as when a company wants to borrow funds in a foreign currency or invest excess funds in a foreign currency. In these cases, the FX swap allows the company to access the foreign currency it needs without having to engage in a traditional foreign currency borrowing or investment transaction.