Swap points: Difference between revisions
imported>Doug Williamson (Make branding consistent) |
imported>Brianlenoach@hotmail.co.uk (Punctuation & spacing. Link with CCIRS page.) |
||
| Line 4: | Line 4: | ||
For example the spot exchange rate is | For example the spot exchange rate is: | ||
GBP 1 = 1.6000 - 1.6010 USD; | GBP 1 = 1.6000 - 1.6010 USD; | ||
| Line 29: | Line 29: | ||
FAR LEG: Buying USD at a rate of USD 1.6005 per 1 GBP. | FAR LEG: Buying USD at a rate of USD 1.6005 per 1 GBP. | ||
The selling rate of USD 1.6000 in the Near leg is better for the price taker, compared with the outright spot selling rate of USD 1.6010 per 1 GBP. (The price taker pays away fewer USD in the near leg, per 1 GBP received.) | The selling rate of USD 1.6000 in the Near leg is better for the price taker, compared with the outright spot selling rate of USD 1.6010 per 1 GBP. (The price taker pays away fewer USD in the near leg, per 1 GBP received.) | ||
| Line 44: | Line 45: | ||
FAR LEG: Selling USD at a rate of USD 1.6018 per 1 GBP. | FAR LEG: Selling USD at a rate of USD 1.6018 per 1 GBP. | ||
The buying rate of USD 1.6010 in the Near leg is better for the price taker, compared with the outright spot buying rate of USD 1.6000 per 1 GBP. (The price taker RECEIVES more USD in the near leg, per GBP 1 paid away.) | The buying rate of USD 1.6010 in the Near leg is better for the price taker, compared with the outright spot buying rate of USD 1.6000 per 1 GBP. (The price taker RECEIVES more USD in the near leg, per GBP 1 paid away.) | ||
| Line 55: | Line 57: | ||
* [[Near leg]] | * [[Near leg]] | ||
* [[Swap rate]] | * [[Swap rate]] | ||
* [[CCIRS]] | |||
[[Category:Manage_risks]] | [[Category:Manage_risks]] | ||
[[Category:Cash_management]] | [[Category:Cash_management]] | ||
Revision as of 07:27, 12 December 2014
FX swaps.
The difference between the exchange rates applied to the near leg and the far leg of an FX swap.
For example the spot exchange rate is:
GBP 1 = 1.6000 - 1.6010 USD;
And the outright forward points are 5-8.
The outright forward exchange rate quote is
GBP 1 = 1.6005 - 1.6018 USD.
The pricing of a related FX swap contract would be favourable for the price-taker (compared with two related outright contracts) for example as follows.
1.
For a price-taker selling USD in the near leg and BUYING back a related amount of USD in the far leg.
The swap points would be +5 (because these are the points applying to calculate an outright forward BUYING rate for a client buying USD forward).
The swap points of +5 applied to calculate the differential between the near leg rate and the far leg rate would produce, for example:
NEAR LEG: Sale of USD at rate of USD 1.6000 per 1 GBP.
FAR LEG: Buying USD at a rate of USD 1.6005 per 1 GBP.
The selling rate of USD 1.6000 in the Near leg is better for the price taker, compared with the outright spot selling rate of USD 1.6010 per 1 GBP. (The price taker pays away fewer USD in the near leg, per 1 GBP received.)
2.
For a price-taker buying USD in the near leg and SELLING back a related amount of USD in the far leg.
The swap points would be +8 (because these are the points applying to calculate an outright forward SELLING rate for a client selling USD forward).
The swap points of +8 applied to calculate the differential between the near leg rate and the far leg rate would produce, for example:
NEAR LEG: Buying USD at rate of USD 1.6010 per 1 GBP.
FAR LEG: Selling USD at a rate of USD 1.6018 per 1 GBP.
The buying rate of USD 1.6010 in the Near leg is better for the price taker, compared with the outright spot buying rate of USD 1.6000 per 1 GBP. (The price taker RECEIVES more USD in the near leg, per GBP 1 paid away.)
