Swap Arrangements

Swap arrangements

Short-term reciprocal lines of credit between the Federal Reserve and 14 foreign centeral banks as well as the Bank for International Settlements. Through a swap transactions, the Federal Reserve can, in effect, borrow foreign currency in order to purchase dollars in the foreign exchange market. In doing so, the demand for dollars and the dollar's foreign exchange value are increased. Similarly, the Federal Reserve can temporarily provide dollars to foreign central banks through swap arrangments.

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Swap Arrangements

Agreements between 15 central banks and the Bank for International Settlements whereby any of the participating institutions can borrow a foreign currency from one of the other ones in order to buy its own domestic currency on the open market. Swap arrangements allow participating institutions to effect changes on their exchange rates, while still allowing their currencies to trade according to market factors.