454:
332:
1937:
877:
395:
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
432:
Therefore they create a 1 month swap, where they Sell EUR and Buy GBP on spot and simultaneously buy EUR and sell GBP on a 1 month (1M) forward. This significantly reduces their risk. The company knows they will be able to purchase EUR reliably while still being able to use currency for domestic
396:
any foreign balances and re-institute them for the following day. To do this they typically use "tom-next" swaps, buying (or selling) a foreign amount settling tomorrow, and then doing the opposite, selling (or buying) it back settling the day after.
287:. An FX swap allows sums of a certain currency to be used to fund charges designated in another currency without acquiring foreign exchange risk. It permits companies that have funds in different currencies to manage them efficiently.
666:
608:
427:
However, this exposes them to FX risk. If
Britain has financial trouble and the EUR/GBP exchange rate moves against them, they may have to spend a lot more GBP to get the same amount of EUR.
417:
A British
Company may be long EUR from sales in Europe but operate primarily in Britain using GBP. However, they know that they need to pay their manufacturers in Europe in 1 month.
403:. 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
913:
422:
They could spot sell their EUR and buy GBP to cover their expenses in
Britain, and then in one month spot buy EUR and sell GBP to pay their business partners in Europe.
1774:
872:{\displaystyle F-S=S\left({\frac {1+r_{d}\cdot T}{1+r_{f}\cdot T}}-1\right)={\frac {S(r_{d}-r_{f})\cdot T}{1+r_{f}\cdot T}}\approx S\left(r_{d}-r_{f}\right)T,}
1686:
283:
is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward) and may use
524:
1480:
1055:
1485:
251:
318:
It is also common to trade "forward-forward" transactions, where the first leg is not a spot transaction, but already a forward date.
995:
307:
transactions occur if both companies have a currency the other needs. It prevents negative foreign exchange risk for either party.
1820:
979:
1510:
475:
353:
1642:
1378:
501:
379:
483:
361:
1962:
1880:
1048:
1025:
112:
1815:
1460:
479:
357:
303:
transaction - that are executed simultaneously for the same quantity, and therefore offset each other. Forward
244:
392:
The most common use of foreign exchange swaps is for institutions to fund their foreign exchange balances.
315:
upon; however, they are planned for a specific date in the very near future, usually within the same week.
1855:
1393:
1247:
1041:
284:
915:
is small. Thus, the value of the swap points is roughly proportional to the interest rate differential.
1711:
1652:
1474:
66:
1756:
1567:
237:
56:
1967:
1875:
1870:
464:
342:
174:
885:
1972:
1825:
1525:
1495:
1470:
1353:
1194:
1126:
941:
468:
346:
158:
143:
102:
1622:
1607:
1572:
1515:
956:
220:
71:
1835:
1500:
1179:
946:
308:
296:
225:
179:
61:
1789:
1746:
1736:
1726:
1721:
1447:
1388:
1323:
1277:
1272:
1146:
1106:
1073:
951:
645:
515:
443:
311:
transactions are similar to forward foreign exchange transactions in terms of how they are
81:
76:
51:
8:
1794:
1582:
1505:
1328:
936:
652:
The forward points or swap points are quoted as the difference between forward and spot,
1002:
1845:
1830:
1799:
1784:
1751:
1617:
1408:
1373:
1136:
1101:
1064:
404:
86:
976:
1850:
1840:
1779:
1766:
1741:
1627:
1413:
1209:
1731:
1670:
1665:
1647:
1577:
1343:
1338:
1310:
1262:
1141:
1081:
304:
300:
205:
138:
107:
1941:
1911:
1906:
1860:
1696:
1691:
1637:
1547:
1455:
1428:
1368:
1363:
1333:
1282:
1267:
1184:
1164:
983:
628:
133:
1916:
1901:
1701:
1612:
1562:
1539:
1520:
1348:
1290:
1257:
1252:
1232:
1156:
271:
16:
Simultaneous purchase and sale of identical amounts of one currency for another
1956:
1896:
1865:
1706:
1632:
1592:
1587:
1423:
1295:
1242:
1237:
1219:
1116:
1096:
924:
639:
400:
215:
210:
189:
153:
46:
41:
20:
1716:
1490:
1418:
1398:
1358:
1227:
1199:
1189:
1131:
184:
1597:
1465:
1436:
1432:
1383:
1174:
1169:
603:{\displaystyle F=S\left({\frac {1+r_{d}\cdot T}{1+r_{f}\cdot T}}\right),}
1921:
1557:
1552:
1318:
1204:
927:, which is a rarer long-term transaction governed by different rules.
1111:
1033:
453:
331:
1681:
1403:
1300:
1121:
312:
128:
399:
The interest collected or paid every night is referred to as the
265:
1936:
410:
Companies may also use them to avoid foreign exchange risk.
514:
The relationship between spot and forward is known as the
923:
A foreign exchange swap should not be confused with a
888:
669:
527:
644:T = tenor (calculated according to the appropriate
907:
871:
602:
1954:
1049:
245:
482:. Unsourced material may be challenged and
360:. Unsourced material may be challenged and
1056:
1042:
252:
238:
502:Learn how and when to remove this message
380:Learn how and when to remove this message
295:A foreign exchange swap has two legs - a
1881:Power reverse dual-currency note (PRDC)
1821:Constant proportion portfolio insurance
1955:
1063:
918:
1037:
996:""Foreign Exchange Swap Transaction""
660:, and is expressed as the following:
1816:Collateralized debt obligation (CDO)
480:adding citations to reliable sources
447:
358:adding citations to reliable sources
325:
13:
14:
1984:
1935:
452:
330:
113:Retail foreign exchange trading
1643:Year-on-year inflation-indexed
1019:
988:
969:
788:
762:
638:= simple interest rate of the
1:
1653:Zero-coupon inflation-indexed
962:
908:{\displaystyle r_{f}\cdot T}
433:transactions in the interim.
290:
285:foreign exchange derivatives
7:
1856:Foreign exchange derivative
1248:Callable bull/bear contract
1026:"Forward Currency Contract"
930:
10:
1989:
441:
437:
18:
1930:
1889:
1808:
1765:
1757:Stock market index future
1661:
1538:
1446:
1309:
1218:
1155:
1089:
1080:
1071:
631:rate of the term currency
57:Exchange-rate flexibility
1876:Mortgage-backed security
1871:Interest rate derivative
1846:Equity-linked note (ELN)
1831:Credit-linked note (CLN)
175:Bretton Woods Conference
19:Not to be confused with
1963:Foreign exchange market
1826:Contract for difference
1127:Risk-free interest rate
942:Foreign exchange market
321:
159:Foreign exchange option
144:Non-deliverable forward
103:Foreign exchange market
1608:Forward Rate Agreement
957:Overnight indexed swap
909:
873:
604:
221:Foreign exchange fraud
72:Floating exchange rate
1836:Credit default option
1180:Employee stock option
947:Forward exchange rate
910:
874:
605:
309:Foreign exchange spot
226:Currency intervention
180:Smithsonian Agreement
167:Historical agreements
149:Foreign exchange swap
1790:Inflation derivative
1775:Commodity derivative
1747:Single-stock futures
1737:Normal backwardation
1727:Interest rate future
1568:Conditional variance
1074:Derivative (finance)
952:Interest rate parity
886:
667:
646:day count convention
525:
518:, which states that
516:interest rate parity
476:improve this section
444:Interest rate parity
354:improve this section
82:Managed float regime
77:Linked exchange rate
52:Exchange rate regime
1942:Business portal
1795:Property derivative
937:Cross currency swap
919:Related instruments
67:Fixed exchange rate
1800:Weather derivative
1785:Freight derivative
1767:Exotic derivatives
1687:Commodities future
1374:Intermarket spread
1137:Synthetic position
1065:Derivatives market
982:2009-01-11 at the
975:Reuters Glossary,
905:
869:
600:
87:Dual exchange rate
1950:
1949:
1851:Equity derivative
1841:Credit derivative
1809:Other derivatives
1780:Energy derivative
1742:Perpetual futures
1623:Overnight indexed
1573:Constant maturity
1534:
1533:
1481:Finite difference
1414:Protective option
822:
740:
591:
512:
511:
504:
390:
389:
382:
270:foreign exchange
262:
261:
1980:
1940:
1939:
1712:Forwards pricing
1486:Garman–Kohlhagen
1087:
1086:
1058:
1051:
1044:
1035:
1034:
1028:
1023:
1017:
1016:
1014:
1013:
1007:
1001:. Archived from
1000:
992:
986:
973:
914:
912:
911:
906:
898:
897:
878:
876:
875:
870:
862:
858:
857:
856:
844:
843:
823:
821:
814:
813:
797:
787:
786:
774:
773:
757:
752:
748:
741:
739:
732:
731:
715:
708:
707:
691:
617:F = forward rate
609:
607:
606:
601:
596:
592:
590:
583:
582:
566:
559:
558:
542:
507:
500:
496:
493:
487:
456:
448:
385:
378:
374:
371:
365:
334:
326:
305:foreign exchange
297:spot transaction
254:
247:
240:
206:Bureau de change
139:Currency forward
108:Futures exchange
29:Foreign exchange
26:
25:
1988:
1987:
1983:
1982:
1981:
1979:
1978:
1977:
1968:Swaps (finance)
1953:
1952:
1951:
1946:
1934:
1926:
1912:Great Recession
1907:Government debt
1885:
1861:Fund derivative
1804:
1761:
1722:Futures pricing
1697:Dividend future
1692:Currency future
1675:
1657:
1530:
1506:Put–call parity
1442:
1429:Vertical spread
1364:Diagonal spread
1334:Calendar spread
1305:
1214:
1151:
1076:
1067:
1062:
1032:
1031:
1024:
1020:
1011:
1009:
1005:
998:
994:
993:
989:
984:Wayback Machine
974:
970:
965:
933:
921:
893:
889:
887:
884:
883:
852:
848:
839:
835:
834:
830:
809:
805:
798:
782:
778:
769:
765:
758:
756:
727:
723:
716:
703:
699:
692:
690:
689:
685:
668:
665:
664:
637:
629:simple interest
626:
578:
574:
567:
554:
550:
543:
541:
537:
526:
523:
522:
508:
497:
491:
488:
473:
457:
446:
440:
386:
375:
369:
366:
351:
335:
324:
293:
258:
134:Currency future
24:
17:
12:
11:
5:
1986:
1976:
1975:
1973:Interest rates
1970:
1965:
1948:
1947:
1945:
1944:
1931:
1928:
1927:
1925:
1924:
1919:
1917:Municipal debt
1914:
1909:
1904:
1902:Corporate debt
1899:
1893:
1891:
1887:
1886:
1884:
1883:
1878:
1873:
1868:
1863:
1858:
1853:
1848:
1843:
1838:
1833:
1828:
1823:
1818:
1812:
1810:
1806:
1805:
1803:
1802:
1797:
1792:
1787:
1782:
1777:
1771:
1769:
1763:
1762:
1760:
1759:
1754:
1749:
1744:
1739:
1734:
1729:
1724:
1719:
1714:
1709:
1704:
1702:Forward market
1699:
1694:
1689:
1684:
1678:
1676:
1674:
1673:
1668:
1662:
1659:
1658:
1656:
1655:
1650:
1645:
1640:
1635:
1630:
1625:
1620:
1615:
1610:
1605:
1600:
1595:
1590:
1585:
1583:Credit default
1580:
1575:
1570:
1565:
1560:
1555:
1550:
1544:
1542:
1536:
1535:
1532:
1531:
1529:
1528:
1523:
1518:
1513:
1508:
1503:
1498:
1493:
1488:
1483:
1478:
1468:
1463:
1458:
1452:
1450:
1444:
1443:
1441:
1440:
1426:
1421:
1416:
1411:
1406:
1401:
1396:
1391:
1386:
1381:
1379:Iron butterfly
1376:
1371:
1366:
1361:
1356:
1351:
1349:Covered option
1346:
1341:
1336:
1331:
1326:
1321:
1315:
1313:
1307:
1306:
1304:
1303:
1298:
1293:
1288:
1287:Mountain range
1285:
1280:
1275:
1270:
1265:
1260:
1255:
1250:
1245:
1240:
1235:
1230:
1224:
1222:
1216:
1215:
1213:
1212:
1207:
1202:
1197:
1192:
1187:
1182:
1177:
1172:
1167:
1161:
1159:
1153:
1152:
1150:
1149:
1144:
1139:
1134:
1129:
1124:
1119:
1114:
1109:
1104:
1099:
1093:
1091:
1084:
1078:
1077:
1072:
1069:
1068:
1061:
1060:
1053:
1046:
1038:
1030:
1029:
1018:
987:
967:
966:
964:
961:
960:
959:
954:
949:
944:
939:
932:
929:
920:
917:
904:
901:
896:
892:
880:
879:
868:
865:
861:
855:
851:
847:
842:
838:
833:
829:
826:
820:
817:
812:
808:
804:
801:
796:
793:
790:
785:
781:
777:
772:
768:
764:
761:
755:
751:
747:
744:
738:
735:
730:
726:
722:
719:
714:
711:
706:
702:
698:
695:
688:
684:
681:
678:
675:
672:
650:
649:
642:
635:
632:
624:
621:
618:
611:
610:
599:
595:
589:
586:
581:
577:
573:
570:
565:
562:
557:
553:
549:
546:
540:
536:
533:
530:
510:
509:
460:
458:
451:
442:Main article:
439:
436:
435:
434:
429:
428:
424:
423:
419:
418:
388:
387:
338:
336:
329:
323:
320:
292:
289:
260:
259:
257:
256:
249:
242:
234:
231:
230:
229:
228:
223:
218:
213:
208:
200:
199:
195:
194:
193:
192:
187:
182:
177:
169:
168:
164:
163:
162:
161:
156:
151:
146:
141:
136:
131:
123:
122:
118:
117:
116:
115:
110:
105:
97:
96:
92:
91:
90:
89:
84:
79:
74:
69:
64:
59:
54:
49:
44:
36:
35:
34:Exchange rates
31:
30:
15:
9:
6:
4:
3:
2:
1985:
1974:
1971:
1969:
1966:
1964:
1961:
1960:
1958:
1943:
1938:
1933:
1932:
1929:
1923:
1920:
1918:
1915:
1913:
1910:
1908:
1905:
1903:
1900:
1898:
1897:Consumer debt
1895:
1894:
1892:
1890:Market issues
1888:
1882:
1879:
1877:
1874:
1872:
1869:
1867:
1866:Fund of funds
1864:
1862:
1859:
1857:
1854:
1852:
1849:
1847:
1844:
1842:
1839:
1837:
1834:
1832:
1829:
1827:
1824:
1822:
1819:
1817:
1814:
1813:
1811:
1807:
1801:
1798:
1796:
1793:
1791:
1788:
1786:
1783:
1781:
1778:
1776:
1773:
1772:
1770:
1768:
1764:
1758:
1755:
1753:
1750:
1748:
1745:
1743:
1740:
1738:
1735:
1733:
1730:
1728:
1725:
1723:
1720:
1718:
1715:
1713:
1710:
1708:
1707:Forward price
1705:
1703:
1700:
1698:
1695:
1693:
1690:
1688:
1685:
1683:
1680:
1679:
1677:
1672:
1669:
1667:
1664:
1663:
1660:
1654:
1651:
1649:
1646:
1644:
1641:
1639:
1636:
1634:
1631:
1629:
1626:
1624:
1621:
1619:
1618:Interest rate
1616:
1614:
1611:
1609:
1606:
1604:
1601:
1599:
1596:
1594:
1591:
1589:
1586:
1584:
1581:
1579:
1576:
1574:
1571:
1569:
1566:
1564:
1561:
1559:
1556:
1554:
1551:
1549:
1546:
1545:
1543:
1541:
1537:
1527:
1524:
1522:
1519:
1517:
1514:
1512:
1511:MC Simulation
1509:
1507:
1504:
1502:
1499:
1497:
1494:
1492:
1489:
1487:
1484:
1482:
1479:
1476:
1472:
1471:Black–Scholes
1469:
1467:
1464:
1462:
1459:
1457:
1454:
1453:
1451:
1449:
1445:
1438:
1434:
1430:
1427:
1425:
1424:Risk reversal
1422:
1420:
1417:
1415:
1412:
1410:
1407:
1405:
1402:
1400:
1397:
1395:
1392:
1390:
1387:
1385:
1382:
1380:
1377:
1375:
1372:
1370:
1367:
1365:
1362:
1360:
1357:
1355:
1354:Credit spread
1352:
1350:
1347:
1345:
1342:
1340:
1337:
1335:
1332:
1330:
1327:
1325:
1322:
1320:
1317:
1316:
1314:
1312:
1308:
1302:
1299:
1297:
1294:
1292:
1289:
1286:
1284:
1281:
1279:
1278:Interest rate
1276:
1274:
1273:Forward start
1271:
1269:
1266:
1264:
1261:
1259:
1256:
1254:
1251:
1249:
1246:
1244:
1241:
1239:
1236:
1234:
1231:
1229:
1226:
1225:
1223:
1221:
1217:
1211:
1208:
1206:
1203:
1201:
1200:Option styles
1198:
1196:
1193:
1191:
1188:
1186:
1183:
1181:
1178:
1176:
1173:
1171:
1168:
1166:
1163:
1162:
1160:
1158:
1154:
1148:
1145:
1143:
1140:
1138:
1135:
1133:
1130:
1128:
1125:
1123:
1120:
1118:
1117:Open interest
1115:
1113:
1110:
1108:
1105:
1103:
1100:
1098:
1097:Delta neutral
1095:
1094:
1092:
1088:
1085:
1083:
1079:
1075:
1070:
1066:
1059:
1054:
1052:
1047:
1045:
1040:
1039:
1036:
1027:
1022:
1008:on 2012-09-16
1004:
997:
991:
985:
981:
978:
972:
968:
958:
955:
953:
950:
948:
945:
943:
940:
938:
935:
934:
928:
926:
925:currency swap
916:
902:
899:
894:
890:
866:
863:
859:
853:
849:
845:
840:
836:
831:
827:
824:
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216:Currency pair
214:
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211:Hard currency
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190:Louvre Accord
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154:Currency swap
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62:Dollarization
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47:Exchange rate
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42:Currency band
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21:Currency swap
1717:Forward rate
1628:Total return
1602:
1516:Real options
1419:Ratio spread
1399:Naked option
1359:Debit spread
1190:Fixed income
1132:Strike price
1021:
1010:. Retrieved
1003:the original
990:
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474:Please help
462:
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405:carry trades
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352:Please help
340:
317:
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280:
276:
269:
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185:Plaza Accord
148:
1648:Zero Coupon
1578:Correlation
1526:Vanna–Volga
1384:Iron condor
1170:Bond option
1957:Categories
1922:Tax policy
1638:Volatility
1548:Amortising
1389:Jelly roll
1324:Box spread
1319:Backspread
1311:Strategies
1147:Volatility
1142:the Greeks
1107:Expiration
1012:2013-06-25
963:References
277:forex swap
1613:Inflation
1563:Commodity
1521:Trinomial
1456:Bachelier
1448:Valuation
1329:Butterfly
1263:Commodore
1112:Moneyness
977:"FX Swap"
900:⋅
846:−
825:≈
816:⋅
792:⋅
776:−
743:−
734:⋅
710:⋅
674:−
585:⋅
561:⋅
492:July 2021
463:does not
413:Example:
370:July 2021
341:does not
291:Structure
1752:Slippage
1682:Contango
1666:Forwards
1633:Variance
1593:Dividend
1588:Currency
1501:Margrabe
1496:Lattices
1475:equation
1461:Binomial
1409:Strangle
1404:Straddle
1301:Swaption
1283:Lookback
1268:Compound
1210:Warrants
1185:European
1165:American
1157:Vanillas
1122:Pin risk
1102:Exercise
980:Archived
931:See also
198:See also
129:Currency
1671:Futures
1291:Rainbow
1258:Cliquet
1253:Chooser
1233:Barrier
1220:Exotics
1082:Options
484:removed
469:sources
438:Pricing
362:removed
347:sources
301:forward
281:FX swap
266:finance
95:Markets
1732:Margin
1598:Equity
1491:Heston
1394:Ladder
1344:Condor
1339:Collar
1296:Spread
1243:Binary
1238:Basket
613:where
313:agreed
299:and a
121:Assets
1603:Forex
1558:Basis
1553:Asset
1540:Swaps
1466:Black
1369:Fence
1228:Asian
1090:Terms
1006:(PDF)
999:(PDF)
279:, or
1437:Bull
1433:Bear
1175:Call
467:any
465:cite
345:any
343:cite
322:Uses
272:swap
268:, a
1205:Put
882:if
478:by
356:by
264:In
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1195:FX
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