View source for Forex Swap

Currencies in Islamic law are only permitted to be exchanged at spot (today) according to [[AAOIFI]] [[Shariah]] Standards. Certain structures based on [[Murabaha]] or [[Waad]] do replicated the outcome of a forward currency exchange.

A conventional Forex swap is the exchange of two loans in different currencies of equal value at spot, which are both paid back at same date in the future. This implies a forward rate of the currencies involved. The loans at spot are netted and not paid out.

An Islamic Forex swap could be replicated by use of two [[Tawarruq]] in different currencies of equal value at spot:

A sells to B 1000 USD of Platin at 1050 payable after one year.
B sells A 750 Euro of Aluminium at 780 Euro payable after one year.
Exchange rate at spot is assumed at 1.33.

After one year 1050 USD have to be paid by B and A has to pay 780 Euro to B. This implied a currency forward rate.

See also: [[Islamic Derivatives]].

==References==

* [http://www.allenovery.com/AOWeb/binaries/45568.pdf Allen & Overy on cross currency swaps]
* [http://www.kantakji.com/fiqh/Files/Finance/N398.pdf Shariah Parameters on Islamic Foreign Exchange Swap as Hedging Mechanism in Islamic Finance] Dr. Asyraf Wajdi Dusuki