Shafiqul Islam Jibon
Swap transactions of foreign currencies other than US dollar in the inter-bank money market has increased in recent days.

For the first time in the foreign exchange market, the British pound sterling and euro are being included in the list of swap transactions as both the currencies are losing value against Taka. The banks that are facing cash inflow problem are mainly using pound sterling and euro in swap transaction, a senior fund manager of a primary dealer bank told the FE Tuesday.

As per latest data of the Bangladesh Foreign Exchange Dealer Association (BAFEDA), swap transaction of pound sterling and euro have reached 5.0 million units and 1.0 million units respectively as on May 27.

The near and far leg rate of exchange of pound sterling was fixed at Tk128.0 and Tk128.1613 respectively on May 27 swap transaction. On the other hand the near and far leg rate of exchange of euro per unit was Tk102.45 and Tk 102.65 respectively on that day.

"Never in last few years, I saw any bank swapping pound sterling and euro. The US dollar was only currency used for the purpose. I have been watching a change in the foreign exchange market for last few weeks," the fund manager said.

A foreign exchange swap often used when a bank needs to roll an existing open foreign exchange position forward to a future date to avoid or delay the delivery required on the contract. Nevertheless, a foreign exchange swap can also be engaged to bring the delivery date closer.

It has two parts which are near leg and far leg currency transaction. It is used to shift or "swap" the value date for a foreign exchange position to another date, often further out in the future.

In the near leg of a swap transaction, particular quantity of a foreign currency is bought or sold versus another currency at an agreed upon rate on an initial date. This is often called the near date since it is usually the first date to arrive relative to the current date.

In the far leg, the same quantity of currency is then simultaneously sold or bought versus the other currency at a second agreed-upon-rate on another value date, often called the far date.