Foreign exchange swap

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The foreign exchange swap ( English forward exchange swap , abbreviated FX-swap ) is a swap in finance , in which two foreign currencies are exchanged between the same counterparties by means of a foreign exchange spot transaction and an opposing forward exchange transaction .

General

In the foreign exchange swap, there is therefore a spot transaction and an opposing forward transaction (spot purchase and forward sale or forward purchase and spot sale). Market participants (counterparties) for both transactions are the same buyer and the same seller, the objects of trade are foreign exchange, the market price is the foreign exchange spot rate and the foreign exchange forward rate , whereby often only the difference between the two (so-called deport or report) has to be paid by one of the market participants is.

Business fundamentals

This difference between spot and forward rates depends on the term of the forward transaction, the interest rate difference between two countries (for interest-bearing financial instruments ), the risk premium and the expected value . If the forward rate in quantity rate under the spot rate, then the difference as Deport ( tee , English discount ) denotes:

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In this case, the comparable interest rates abroad are lower than in Germany and a devaluation of the foreign currency is expected. If the forward rate is higher than the spot rate, it is a report ( premium , English premium ):

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The foreign interest level is higher than in Germany, an appreciation of the foreign currency is expected. The situation is reversed when quoted prices .

economic aspects

The price driver in the currency swap is the interest rate differential that exists between the exchanged currencies. If there is no difference in interest rates, the spot rate and the forward rate must be identical. Since spot and forward rates generally do not match, the swap rate is calculated as the relative difference between the forward rate and the spot rate in relation to the spot rate ( percent per annum ):

If the difference between the spot rate and the forward rate is greater than the swap rate, arbitrage opportunities arise . The motive for a foreign exchange swap is therefore the exploitation of an interest rate difference, hence also called interest rate difference business or interest rate difference arbitrage. The foreign exchange swap is a risk-free arbitrage because the interest rate difference and rates are fixed at the time of the transaction. The difference between the spot rate and the forward rate grows - except for an indifference margin - until the arbitrage is no longer worthwhile.

Applications

In the case of a commercial background , an exporter who has given his importer a payment term for the purchase price can make good use of the foreign exchange swap. By the payment of the exporter has the foreign currency with a forward contract to his bank for the purpose of hedging sold. If the importer does not pay on time, the bank sells the amount of the currency forwards to the exporter on its due date by means of a cash deal so that the exporter can fulfill the currency forwards. Conversely, this also applies to the importer who hedges his liability by buying currency forwards.

With a speculative background , currency swaps can be used if a trader expects a currency to appreciate or depreciate. For example, in September 1992 the Quantum Fund speculated against the British pound on the basis of the global macro strategy by using a currency swap to bet US $ 10 billion on a devaluation of the pound, which also occurred. Within a week, the fund turned this into a profit of US $ 1 billion.

Since 1987, synthetic currency swaps have also been possible, in which only one of the two counterparties pays the swap rate and the mutual payment of the principal amounts is waived. This eliminates the mutual settlement risk (except for the payment of the swap rate).

The European System of Central Banks uses foreign exchange swaps to compensate for unexpected fluctuations in bank liquidity and market interest rates . They buy (sell) foreign currency from (to) commercial banks in the spot market and at the same time sell (buy) them back to (from) the commercial bank (s) via forward transactions. Since October 2013, the European Central Bank has been concluding unlimited currency swap framework agreements with various central banks outside the EMS .

Demarcation

The currency swap is to be distinguished from the currency swap. In contrast to the foreign exchange swap, the two currencies are exchanged at the respective spot exchange rate at the beginning and at the end of the term. In the case of the currency swap, the existing interest rate difference is balanced out during the term of the financial contract through corresponding payments ( fixed interest rate by one counterparty, variable interest rate by the other). With a foreign exchange swap, the principal amounts are exchanged without the associated interest obligations; rather, this is done through a one-off payment of the deport or report.

Individual evidence

  1. ↑ Hannes Enthofer / Patrick Haas, Handbuch Treasury / Treasurer's Handbook , 2012, p. 561
  2. ^ Hermann-Josef Dudler, Discount and Forward Rate Policy , 1969, p. 31
  3. ^ John Maynard Keynes , A Tract on Monetary Reform , 1923, p. 127
  4. ↑ Ursula Radel-Leszczynski, Hedge Funds for Beginners , 2005, p. 144
  5. ^ Christoph Graf von Bernstorff, Finanzinnovationen , 1996, p. 141
  6. ^ Adam Reining, Lexikon der Außenwirtschaft , 2003, p. 108
  7. ^ Christoph Graf von Bernstorff, Finanzinnovationen , 1996, p. 141
  8. ^ Christoph Graf von Bernstorff, Finanzinnovationen , 1996, p. 143
  9. ↑ Norbert Horn / Ernst Heymann (eds.), Commercial Code (excluding Maritime Law): Commentary , Volume 3, 1999, p. 184