Define a currency swap.

A currency swap is best defined as an agreement for periodic currency exchange at specified rates. In a typical currency swap, two parties agree to exchange principal amounts in different currencies for a specified period. They also agree to exchange interest payments in those currencies at predetermined rates. This arrangement allows parties to have access to foreign currencies while potentially benefiting from favorable interest rates.

The structure of a currency swap enables entities to hedge against foreign exchange risk or to obtain funding in a desired currency. For instance, a company in the U.S. might engage in a currency swap with a company in Europe to obtain Euros while paying interest in U.S. dollars, thus allowing both parties to meet their financial needs more effectively.

The other options do not accurately reflect the nature of a currency swap. For instance, an option to buy a currency at a later date refers to currency options rather than swaps. A contract to purchase currency futures describes financial derivatives that don't involve the exchange of principals in different currencies. Similarly, a loan agreement between banks does not capture the periodic nature or the structure of currency exchanges inherent in a currency swap.