FX Swap
Exchange currencies now and reverse the exchange later.
Read the contractual cash flows first.
An FX swap moves funding across currencies while keeping most spot risk neutralised.
Exchange currencies now and reverse the exchange later.
Express payoff and present value precisely.
Notation and units
Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.
Make conventions part of the contract.
Contract dates, calendars, settlement, notionals and payoff currency are part of the valuation input.
Discounting and projection conventions must match the collateral and quotation framework.
The displayed payoff omits legal terms and lifecycle events unless stated otherwise.
“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN
Locate the quote and replication instruments.
Treasury funding, liquidity management and forward-curve construction.
Map cash-flow changes into hedge risk.
Reconcile the contractual payoff before reading the FX risk. Small date or convention changes can move cash flows before any model parameter moves.
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