Emerging in the days when currency markets were regulated with limits imposed, the currency swap is still a popular investment product. The basis if the currency swap is found in the exchanging of a principal amount of currency in the present with an agreement to reverse the transaction at a time agreed in the future. Typically, they involve debt instruments in respective currencies and so have cash flows that are denominated in those currencies.

Often the debt instruments involved have the characteristics of swaps, in that one party may swap a fixed rate in their domestic currency for floating rate interest in a foreign currency. The risk adopted is essentially one of currency risk, combined with an interest rate risk.

It may at first seem that investing in the higher interest rate, and borrowing at the lower interest rate is simply a profit, however, the exchange rate between the currencies will be found to reflect the perceived discrepancy to some extent. However, as interest rate risk is adopted, there are opportunities to profit from trading what is essentially a multinational yield curve. This of course has inherent risks of its own, but in an ever increasing global economy where, as in the present, short term interest rates around the world are lowering in unison, it is possible to have an opinion of the yield curve across currencies and benefit from certain dynamics.

For instance if a domestic currency was increasing in value to the US$, and it was possible to receive a US interest rate that while lower than the domestic rates, may be considered value in comparison due to its perceived security in times of financial uncertainty, it may be possible to exchange the highly valued domestic currency and invest in US securities. Then after receiving the interest, further gains may be made by re-exchanging the domestic currency at a lower exchange rate, and adding to the overall return, which in this case may be found to be much higher than the domestic rates. If this transaction was taken in exchange for an offsetting of a fixed or floating domestic interest rate, even more returns are able to be made if the differential between the two interest rates had widened or narrowed respectively.

These types of transactions however have been marketed aggressively in some parts of the world as a cheaper means of finance than available in the domestic market. However, the sheer inheritance of currency risks can often outweigh any advantage of savings on borrowing.
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