In the spot and outright forward markets, a fixed amount of the base currency (most often the dollar) is always traded for a variable amount of the terms currency (most often a non-dollar currency).
However, in the FX swap market, a trade for a fixed amount of either currency can be arranged.
There are two kinds of FX swaps: a buy/sell swap, which means buying the fixed, or base, currency on the near date and selling it on the far date; and a sell/buy swap, which means selling the fixed currency on the near date and buying it on the far date.
If, for example, a trader bought a fixed amount of pounds sterling spot for dollars (the exchange) and sold those pounds sterling six months forward for dollars (the re-exchange), that would be called a buy/sell sterling swap.
No comments:
Post a Comment