Foreign Exchange - Part 5 (2021)
This eCourse consists of two modules. Some short-dated currency trades allow for settlement taking place before the spot value date. Instruments such as forward outrights and FX swaps are typically used for trades that settle after the spot value date. However, with some adjustments, these instruments can be used for short-dated trades. Module 1 describes the mechanics of this in detail.
FX swaps are one of the most liquid financial instruments and are extremely important in currency markets. Their role as both a hedging instrument and a speculative tool have helped them become the popular instrument they are today. Module 2 describes how FX swaps are traded from the viewpoint of the rates to be used, how the transactions are agreed between parties, and the profits/losses that are paid to the different parties to the swap. This module also looks at the effect that interest rate changes have on FX swaps through the underlying interest differential between currencies.
On completion of this course, you will be able to:
- Describe the challenges associated with pre-spot settlement in the FX market
- Explain the terms used for short-dated trades, such as "spot/next" and "tom/next"
- Outline how a short-dated trade is priced
- Describe how traders deal on a swap's bid and offer price
- Explain the impact of interest rate movements on swap points
Module 1: FX Forward Market - Short-Dated Outrights & FX Swaps
Topic 1: Trading for Settlement Before Spot
Topic 2: Pricing Short-Dated Trades
Module 2: FX Forward Market - FX Swap Trading
Topic 1: FX Swap Dealing Terminology & Mechanics
Topic 2: How Swap Traders Make a Profit or Loss