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Spot–future parity (or spot-futures parity) is a parity condition whereby, if an asset can be purchased today and held until the exercise of a futures contract, the value of the future should equal the current spot price adjusted for the cost of money, dividends, "convenience yield" and any carrying costs (such as storage).
The bid–ask spread (also bid–offer or bid/ask and buy/sell in the case of a market maker) is the difference between the prices quoted (either by a single market maker or in a limit order book) for an immediate sale and an immediate purchase for stocks, futures contracts, options, or currency pairs in some auction scenario.
In finance, a foreign exchange swap, forex swap, or FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward) [1] and may use foreign exchange derivatives. An FX swap allows sums of a certain currency to be used to fund charges designated in another ...
A forward exchange contract is identified as an agreement that is made between two parties with an intention of exchanging two different currencies at a specific time in the future. In this situation, a business makes an agreement to buy a given quantity of foreign currency in the future with a prearranged fixed exchange rate (Walmsley, 2000).
Rational pricing underpins the logic of swap valuation. Here, two counterparties "swap" obligations, effectively exchanging cash flow streams calculated against a notional principal amount, and the value of the swap is the present value (PV) of both sets of future cash flows "netted off" against each other.
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Call option – the right to buy an asset at a fixed date and price. Put option – the right to sell an asset at a fixed date and price. Foreign exchange option – the right to sell money in one currency and buy money in another currency at a fixed date and rate. Strike price – the asset price at which the investor can exercise an option.