FX Swaps

Also referred to as Foreign Exchange Swaps
This is used to hedge exchange rate risk.
This swap exchanges Principal Only (no interest)


Also known as FOREX swap or Foreign Currency swap


This is the agreement to exchange a lump sum of one currency for a lump sum in another currency today using the spot rates and agreeing to reverse this on a specific date in the future.



FX Swaps can be booked in all major currencies (minimum amount GBP 12,500 equivalent) with a final maturity date of up to typically one year.


A FX Swap has two legs or stages (a near leg date and a far leg date).
short-dated include - overnight, tom-next, spot-next, spot-week


The counterparties exchange currencies at the swap rate on inception and agree to re-exchange at maturity at the forward rate on entry.
No interest is exchanged
This is very similar to a forward contract
This is equivalent to an fx spot transaction and an forward outright transaction


1 month
1 year
long dated


Example

EUR/USD
3 months
one cashflow at the start (using spot)
one cashflow at the end (this is fixed at the start using a projected forward rate)






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