Roll over cross currency swap at off market rate

Loner · August 28th, 2003, 2:10 am

Hi Hi,I understand that it is possible for corporates who intend to defer their overseas divestment plan to roll over the cross currency swap at a off market rate during the exchange of principal at the maturity date of the swap. Is this a common practice and will the auditors allow it?Please enlighten me on the advantages and disadvantages of rolling over the cross currency swap at a off market rate. Thank you.RegardsLoner

FDAXHunter · August 28th, 2003, 5:56 am

Well, the advantage is that you can hide a loss or a profit in an unrealized position, so, since swaps are OBS (off-balance sheet), that's a very simple way to move cash around.The disadvantage is, that you are obviously not marking-to-market properly, and some auditors will frown on this. However, as the US has shown in recent years, it doesn't really matter what the auditor thinks .In any western financial institution, this would be highly illegal to do, nevertheless, people still do it sometimes and get away with it.Hope this helps.