By Mike Duncan | October 2026
FX swap vs cross-currency swap: different jobs
The FX swap vs cross-currency swap choice decides how a long-dated foreign asset or liability is hedged for the next ten years or more. The two sit in different markets and solve different problems, and treating them as interchangeable leaves a portfolio exposed long before it shows.
FX Swap
An FX swap is a short-dated liquidity tool: an exchange of currencies now and a reversal later. It suits near-term funding gaps and short exposures, and liquidity is deepest inside a year. Used to hedge a ten-year asset, it means around forty quarterly rolls, each one resetting the forward points and settling in cash at whatever the market is doing that day. That roll risk builds over the life of the hedge.
Cross-Currency Swap
A cross-currency swap exchanges principal and interest for the full life of the trade, so a foreign-currency asset or liability behaves like a domestic one. It takes out the roll risk. Liquidity risk stays: cross-currency swap collateral under a CSA moves daily with the mark-to-market, and for a corporate without a CSA the swap uses up credit lines instead.
When a long-dated exposure is hedged with a short-dated instrument, the cost comes through slowly, roll by roll, and by the time it shows up in a hedge review the portfolio has already paid for the mismatch.
Read the Executive Brief
FX Swaps vs Cross-Currency Swaps
