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.