A currency swap is a kind of agreement between two parties. This agreement means the exchange of the certain amount of the currency #1 for the currency #2 and the reverse exchange for the defined period of time.
Currency swap can be made for rather long period of time (up to several years). According to the US accounting laws the currency swap is not a loan and that is why it is not shown in the balance sheet of the company made it. It is just a forex transaction and guarantee the parties undertake to close it in the future.
When the currency swap is made the principal amount of the currency is being exchanged. There are no obligations to pay interests (as it is made in interest rate swaps) as different currencies involved in the deal.
Currency swaps are sometimes used along with interest rate swaps. Let consider that one company is going to exchange a cash flow with fixed rate debt in the USD for the floating rate debt in Euro. The European companies often use such scheme. They purchase cheapest debt no matter in what currency it is and then trying to swap it into the currency they need.
Let’s consider following example. US company wants to buy some British pounds and UK company wants too buy some USD. So they can swap their currencies, agree about interest rate and the term of the next exchange. Currency swaps can be made for 10 years thus they are quite useful when exchanging foreign currency.
The initial aim of the currency swap was to evade exchange controls.