Deriscope

The Excel Derivatives Periscope

Coverage

FX_Swap

FX Swap is a child type of Multi Leg Swap that represents an fx swap whereby two currencies DOM (the source currency) and FOR (the target currency) are exchanged at some initial time and then again - but with the opposite direction - at some time later.
It is represented as a special case of a
Multi Leg Swap with two legs, where the first leg corresponds to DOM and the second leg to FOR
If the direction of the cash flows amounts to borrowing FOR against lending DOM, the swap's direction type is called Borrower, otherwise is called Lender
More specifically, at inception the holder of an fx swap of the Borrower type pays n1 units of DOM and receives n2 units of FOR
At maturity the same party receives N1 units of DOM and pays N2 units of FOR
The notionals n1, n2, N1, N2 are contractually specified so that the value of the swap equals 0 when it is entered.
This is equivalent to the ratios n2/n1 and N2/N1 equaling the spot and forward fx rates respectively of the pair DOM/FOR as these are observed at that time.
As the market fx rates keep changing, the notionals remain fixed and the swap's value will inevitably deviate from 0.

Note that the market practice for quoting the ongoing fx swap transactions are not by their price - which equals 0 anyway - but by the spread between the forward fx (N2/N1) and the spot fx (n2/n1)

This product's pricing is carried out by the ORE library and it has been observed that the input spot fx rate is always treated as if it were spot settled regardless of the associated number of settlement days and conventions.