FX fwd outright^swap, rolling fwd, repo…briefly

There are 2 instruments in FX forward. Forward outright is among the simplest types of financial forward contracts. You actually exchange (like going through the money-changer exactly once) the 2 amounts on a future date. This instrument is not tradable.

(An alternative form of outright is NDF, common for Chinese RMB. Money-changer 0 times i.e. never. It’s a cash-settled derivative just like FRA or IRS.)

The more complex forward instrument is the FX swap (I don’t mean “currency swap”, which is basically IRS). Tradable on interbank market. Money-Changer 2 times, on Near date and Far date. To understand the Need for FX swap, we need to understand rolling forward….

FX swap is like a repo — 2 legs, 2 settlement dates.

Important jargon/concepts in FX forward
* near date, far date
* near leg (usually “spot leg”), forward leg

Most FX forward contracts have a timeline of 1 to 12 months from trade date. Same for FX options.


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