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Currency swap agreement between India and Japan
Why is it in the news ?
- India and Japan signed a currency swap agreement worth $75 billion during Prime Minister Narendra Modi’s visit to Japan.
- The agreement will bolster the country’s firepower as it battles a steep drop in the rupee’s value.
What is Currency Swap ?
- A currency swap typically involves the exchange of interest and sometimes of principal in one currency for the same in another currency.
- Interest payments are exchanged at fixed dates through the life of the contract.
- It is considered to be a foreign exchange transaction and is not required by law to be shown on a company's balance sheet.
More in the news
- Japan had offered a $50 billion currency swap in 2013 and, before that, one for $3 billion in 2008.
- This facility will enable the agreed amount of foreign capital being available to India for use as and when the need arises.
- It also helps in bringing greater stability to foreign exchange & capital markets in India.
- Japan can also seek dollars from India in exchange for yen.
- The arrangement will be used only when required, and will help meet short-term liquidity mismatches.
Source
The Hindu, Economic Times.