Why is it in the news ?
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India and Japan signed a currency swap agreement worth $75 billion during Prime Minister Narendra Modi’s visit to Japan.
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The agreement will bolster the country’s firepower as it battles a steep drop in the rupee’s value.
What is Currency Swap ?
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A currency swap typically involves the exchange of interest and sometimes of principal in one currency for the same in another currency.
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Interest payments are exchanged at fixed dates through the life of the contract.
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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
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Japan had offered a $50 billion currency swap in 2013 and, before that, one for $3 billion in 2008.
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This facility will enable the agreed amount of foreign capital being available to India for use as and when the need arises.
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It also helps in bringing greater stability to foreign exchange & capital markets in India.
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Japan can also seek dollars from India in exchange for yen.
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The arrangement will be used only when required, and will help meet short-term liquidity mismatches.
Source
The Hindu, Economic Times.