Swap points: Difference between revisions
imported>Doug Williamson (Order links.) |
imported>Doug Williamson (Make earlier link to FX swap definition page.) |
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''FX swaps.'' | ''FX swaps.'' | ||
The difference between the exchange rates applied to the near leg and the far leg of | The difference between the exchange rates applied to the near leg and the far leg of a foreign exchange swap. | ||
The definition and pricing of FX swaps are discussed in more detail on the page [[foreign exchange swap]]s. | |||
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GBP 1 = 1.6000 - 1.6010 USD. | GBP 1 = 1.6000 - 1.6010 USD. | ||
The | The forward points - also known as the swap points - are 5-8. | ||
The <u>outright</u> forward exchange rate quote is: | The <u>outright</u> forward exchange rate quote is: | ||
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The pricing of a related FX swap contract would be favourable for the price-taker (compared with | 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. | ||
1. | 1. | ||
For a | 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 would be +5 (because these are the points applying to calculate an outright forward BUYING rate for a client buying USD forward). | ||
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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 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 | (The customer pays away fewer USD in the near leg, per 1 GBP received.) | ||
2. | 2. | ||
For a | 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 would be +8 (because these are the points applying to calculate an outright forward SELLING rate for a client selling USD forward). | ||
Revision as of 13:45, 3 January 2016
FX swaps.
The difference between the exchange rates applied to the near leg and the far leg of a foreign exchange swap.
The definition and pricing of FX swaps are discussed in more detail on the page foreign exchange swaps.
Example
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.
1.
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.)
2.
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.)
