Distinguish between the following: Currency Swap and Interest Rate Swap.

Difference between Currency Swap and Interest Rate Swap Currency Swap: The currency swap is an agreement between two parties to exchange (swap) payments or receipts in one currency for payment or receipts in other currency. Suppose, if two entities are trading in currency, the rationale for currency swap between them lies in the fact that one borrower has a comparative advantage in borrowing in one currency, while the other borrower has an advantage in borrowing in another currency. Interest Rate Swap: An interest rate swap is an agreement whereby one party exchanges one set of interest rate payment for another rate over a time period. The most common arrangement is an exchange of fixed interest rate payment for another rate over a time period. The interest rates are calculated on notional values of principals. In currency swaps, there is involvement of two currencies while in interest swap only one currency is involved.