Foreign Exchange - Part 4 (2018)
This eCourse consists of three modules on FX Forward Market. Forward points, also known as swap points, are the price paid by the holder of the higher interest-bearing currency to a counterparty holding the lower interest bearing-currency for the period of a forward FX transaction (outrights and FX swaps). Module 1 explains how the forward rate, and by extension the forward points, can be derived from the interest rate between two currencies. For currency pairs not involving US dollar (cross rates), market participants must use the process of triangulation. The module describes in detail how to do this.
Module 2 describes some of the more popular forward foreign exchange instruments used on a daily basis in the market. A forward outright is an instrument that is constructed in a similar way to a spot transaction. However, the value date on the forward outright occurs after the spot value date. FX swaps, on the other hand, involve the exchange of two currencies on the spot value date and then the re-exchange of the currencies on the swap value date. The module looks at the main users of forward outrights and FX swaps and the reasons why they might use these instruments.
Module 3 uses a scenario to demonstrate using FX Swaps & Outrights for Cash Flow Management. The use and trading of foreign exchange forwards, particularly FX swaps, can be difficult to master. This scenario will provide you with a better understanding of the principles involved by examining a number of situations in which a corporate treasurer uses FX swaps and outrights to manage cross-currency cash flows. It will demonstrate how some exposures are identified, together with the trades and cash flows required to cover them in the FX market.
On completion of this course, you will be able to:
- Calculate the forward points for a currency pair
- Identify the forward points on a forward outright
- Calculate a forward cross rate
- Identify the main users of forward outrights and describe how they are used in FX hedging operations
- Show how FX swaps are used to manage cash flows, move maturity dates, maintain open positions, and cover short positions
Module 1: FX Forward Market - Calculating Swap/Forward Points & Cross Rates
Topic 1: Calculating Forward Points
Topic 2: Forward Outrights
Topic 3: Forward Cross Rates
Module 2: FX Forward Market - Uses of Outrights & FX Swaps
Topic 1: Using Forward Outrights
Topic 2: Using FX Swaps
Module 3: Scenario - Using FX Swaps & Outrights for Cash Flow Management