Swap points and T-statistic: Difference between pages

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imported>Doug Williamson
m (Spacing 15/8/13)
 
imported>Doug Williamson
m (Spacing 14/8/13)
 
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''FX swaps.''
A measure of statistical significance.


The difference between the exchange rates applied to the near leg and the far leg of an FX swap.
The t-statistic measures the likelihood that the observed data under review might have arisen randomly (rather than as a result of the proposed statistical relationship).
 
 
For example the spot exchange rate is GBP 1 = 1.6000 - 1.6010 USD;
 
And the outright forward 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 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.)




== See also ==
== See also ==
* [[Far leg]]
* [[Regression analysis]]
* [[Forward points]]
* [[FX swap]]
* [[Near leg]]
* [[Swap rate]]

Revision as of 16:07, 14 August 2013

A measure of statistical significance.

The t-statistic measures the likelihood that the observed data under review might have arisen randomly (rather than as a result of the proposed statistical relationship).


See also