A contractual agreement to exchange a principal amount of two different currencies and, after a prearranged length of time, to give back the original principal. Interest payments in each currency are also typically swapped during the life of the agreement. It is a simultaneous borrowing and lending operation whereby two parties exchange specific amounts of two currencies at the outset at the spot rate. They also exchange interest rate payments in the two currencies. The parties undertake to reverse the exchange after a fixed term at a fixed exchange rate.