Receivables management and Swap points: Difference between pages
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''FX swaps'' | |||
The difference between the exchange rates applied to the near leg and the far leg of a foreign exchange (FX) swap. | |||
The definition and pricing of FX swaps are discussed in more detail on the page [[foreign exchange swap]]s. | |||
<span style="color:#4B0082">'''Example 1: Low side points'''</span> | |||
The spot exchange rate is: | |||
GBP 1 = 1.6000 - 1.6010 USD. | |||
The forward points - also known as the swap points - are 5-8. | |||
The <u>outright</u> 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 an outright spot exchange and an outright forward contract) for example as follows. | |||
For a customer 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 customer pays away fewer USD in the near leg, per 1 GBP received.) | |||
<span style="color:#4B0082">'''Example 2: High side points'''</span> | |||
For a customer 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.) | |||
== See also == | == See also == | ||
* [[ | * [[CCIRS]] | ||
* [[ | * [[CertFMM]] | ||
* [[ | * [[Far leg]] | ||
* [[ | * [[Forward points]] | ||
* [[Foreign exchange swap]] | |||
* [[Near leg]] | |||
* [[Points]] | |||
* [[Swap rate]] | |||
[[Category:Financial_management]] | |||
[[Category:Manage_risks]] | |||
[[Category:Cash_management]] |
Revision as of 10:35, 13 November 2016
FX swaps
The difference between the exchange rates applied to the near leg and the far leg of a foreign exchange (FX) swap.
The definition and pricing of FX swaps are discussed in more detail on the page foreign exchange swaps.
Example 1: Low side points
The spot exchange rate is:
GBP 1 = 1.6000 - 1.6010 USD.
The forward points - also known as the swap 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 an outright spot exchange and an outright forward contract) for example as follows.
For a customer 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 customer pays away fewer USD in the near leg, per 1 GBP received.)
Example 2: High side points
For a customer 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.)