DOLLAR RUPEE SWAP

• In a currency swap, two parties agree to exchange a specified amount of one currency for an equivalent amount of another currency. This initial exchange is usually at the prevailing exchange rate
• The currency swap has a predetermined maturity date when the initial exchange is reversed. At the maturity date, the parties reverse the initial exchange, returning the original principal amounts to each other. Any interest payments made are also settled at this point
• Currency swaps can be used to hedge against exchange rate risk. If a company has cash flows in multiple currencies, a currency swap can help them lock in a favorable exchange rate and reduce exposure to currency fluctuations
• Currency swaps can enable entities to access lower interest rates in different currency markets. For example, a company in the United States might have better borrowing terms in U.S. dollars, while a European company might find better terms in euros. They can use a currency swap to take advantage of these favorable rates

• Currency swaps can help mitigate exchange rate risk. By swapping one currency for another, entities can lock in a favorable exchange rate for future transactions, thereby reducing the impact of adverse currency movements on their financial position
• One of the primary objectives of currency swaps is to access lower borrowing costs in a foreign currency. This can result in reduced interest expenses for one or both parties involved in the swap.
• Currency swaps provide access to foreign currencies, which can be crucial for entities engaged in international business. This can enable companies to conduct transactions or investments in a foreign market without the need to convert currencies in the open market
• Traders and financial institutions may use currency swaps to exploit arbitrage opportunities arising from differences in interest rates between two currencies. If executed successfully, this can lead to profits
• Some currency swaps are structured to provide tax advantages, such as reducing tax liabilities. However, the tax implications of currency swaps can vary depending on the jurisdiction and the specific structure of the transaction
• Currency swaps may also be structured to comply with regulatory requirements or to take advantage of regulatory incentives, such as favorable treatment of certain financial instruments
• Currency swaps may result in gains or losses due to changes in exchange rates or interest rates during the life of the swap. These gains or losses may impact financial statements and tax liabilities

• A Dollar-Rupee Swap, also known as a currency swap or a forex swap, is a financial agreement between two parties, typically a bank and a corporation or another financial institution, to exchange a specified amount of U.S. dollars (USD) for Indian rupees (INR) and vice versa at an agreed-upon exchange rate for a predetermined period.
• The swap auction can be done in the reverse way also when there is shortage of liquidity in the system. The RBI then buys dollars from the market and releases an equivalent amount in the rupeesThese transactions allow participants to meet their currency needs, manage exchange rate risk, and access funds in foreign currency
• The RBI sold $5.135 billion to banks and simultaneously agreed to buy back the dollars at the end of the swap settlement period. When the central bank sells dollars, it sucks out an equivalent amount in rupees, thus reducing the rupee liquidity in the system.
• Dollar inflow into the market will strengthen the rupee which has already hit the 77 level against the US dollar