RBI extends Currency Swap Arrangement with SAARC nations
The Reserve Bank of India (RBI) has extended currency swap arrangement to South Asian Association for Regional Cooperation (SAARC) nations till mid-November 2017.
All 7 SAARC member countries including Bangladesh, Afghanistan, Maldives, Bhutan, Nepal, Pakistan and Sri Lanka can avail the facility.
Under the arrangement, RBI will be offering swap arrangement up to an overall amount of US 2 billion dollars both in foreign currency and Indian rupee.
This move of RBI aims at enhancing economic cooperation and strengthening financial stability among the SAARC countries.
What is a Currency Swap?
- A currency swap involves exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction.
- For example: Suppose a US based company needs to acquire Indian Rupees and India-based company needs to acquire US dollars.
- Then these two companies could arrange to swap currencies by establishing an interest rate, agreed upon amount along with a common maturity date for the exchange.