Forex swap is a simultaneous purchase and sale, or vice versa, of identical amounts of one currency for another with two different value dates.
A foreign exchange swap can be used to eliminate potential exchange losses resulting from adverse ... Swap protects customer against exchange rate risk. FX Swap Transaction which involves the actual exchange of two currencies
Do not confused FX swap with a cross currency swap

Currency swaps are often combined with interest rate swaps

For example, one company would seek to swap a cash flow for their fixed rate debt denominated in US dollars for a floating-rate debt denominated in Euro. This is especially common in Europe where companies "shop" for the cheapest debt regardless of its denomination and then seek to exchange it for the debt in desired currency.

Forex Swap Uses
By far and away the most common use of FX swaps is for institutions to fund their foreign exchange balances.
Once a foreign exchange transaction settles, the holder is left with a positive (or long) position in one currency, and a negative (or short) position in another. In order to collect or pay any overnight interest due on these foreign balances, at the end of every day institutions will close out any foreign balances and re-institute them for the following day. To do this they typically use tom-next swaps, buying (selling) a foreign amount settling tomorrow, and selling (buying) it back settling the day after.
The interest collected or paid every night is referred to as the cost of carry. As currency traders know roughly how much holding a currency position will make or cost on a daily basis, specific trades are put on based on this; these are referred to as carry trades.
A forex swap consists of two legs:

A spot foreign exchange transaction

A forward foreign exchange transaction

These two legs are executed simultaneously for the same quantity, and therefore offset each other.
It is also common to trade forward-forward, where both transactions are for (different) forward dates.
Forex swap or FX swap
Forex swap (or FX swap) is an over-the-counter short term interest rate derivative instrument. In emerging money markets, forex swaps are usually the first derivative instrument to be traded, ahead of forward rate agreements.

Forex Swap

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A forex swap consists of two legs:
a spot foreign exchange transaction, and
a forward foreign exchange transaction.
These two legs are executed simultaneously for the same quantity, and therefore offset each other.
FX Swaps
A swap involves two legs, the first usually being a spot transaction and the second a forward transaction. An FX swap involves purchase or sale of one currency in exchange for another, with its immediate resale or repurchase at a later date.
Forex Swap Pricing
The relationship between spot and forward is as follows:
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where:
F = forward
S = spot
rT = simple interest rate of the term currency
rB = simple interest rate of the base currency
T = tenor (calculated according to the appropriate day count convention)
The forward points or swap points are quoted as the difference between forward and spot, F - S, and is expressed as the following:

where rT and rB are small. Thus, the absolute value of the swap points increases when the interest rate differential gets larger, and vice versa.
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