Currency swap between Bangladesh Bank and commercial banks introduced 

Bangladesh has decided to introduce currency swaps between the central bank and commercial banks considering the local foreign exchange market dynamics. 

The system came into force immediately, the BB said in a notice today. 

A currency swap involves the exchange of interest—and sometimes of principal—in one currency for the same in another currency. Companies doing business abroad often use currency swaps to get more favourable loan rates in the local currency than if they borrowed money from a local bank.

A forex swap has two legs or stages: a near leg date and a far leg date. 

On the near leg date, one swaps one currency for another at an agreed spot foreign exchange rate and agrees to swap the same currencies back again on a future date (far leg date) at a forward foreign exchange rate.

For conventional commercial banks, the central bank said, the taka will be sold in exchange for approved foreign currencies at the spot rate at the near-leg. 

At the far-leg, the deal will be settled by applying the same exchange rate with a swap point based on the interest rate differential considering the prevailing benchmark rate of foreign currencies. 

For Shariah-based commercial banks, at the near-leg, the taka will be sold in exchange for approved foreign currencies at the spot rate. At the far-leg, the deal shall be settled by applying the same exchange rate.

The swap deal shall be executed within the counterparty limit to be set by the Forex Reserve and Treasury Management Department (FRTMD) of the BB.

Each deal shall be multiples of one million of the foreign currency, starting from a minimum value of five million and equivalent taka with a tenure of seven days to 90 days.

The rollover may be allowed by applying the prevailing rates, the notice said.

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