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A cross-currency swap's (XCS's) effective description is a derivative contract, agreed between two counterparties, which specifies the nature of an exchange of payments benchmarked against two interest rate indexes denominated in two different currencies.
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 currency swap involves exchanging principal and fixed rate interest payments on a loan in one currency for principal and fixed rate interest payments on an equal loan in another currency. Just like interest rate swaps, the currency swaps are also motivated by comparative advantage. Currency swaps entail swapping both principal and interest ...
Non-linear IRDs form the set of remaining products. Those whose PVs are commonly dictated by more than the one-to-one movement of the underlying interest rate index. Examples of non-linear IRDs are; swaptions, interest rate caps and floors and constant maturity swaps (CMSs). These products' PVs are reliant upon volatility so their pricing is ...
Foreign exchange transactions can be traced back to the fourteenth Century in England. The development of foreign exchange derivatives market was in the 1970s with the historical background and economic environment. Firstly, after the collapse of the Bretton Woods system, in 1976, the International Monetary Fund held a meet
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For example, a GBPUSD contract could give the owner the right to sell £1,000,000 and buy $2,000,000 on December 31. In this case the pre-agreed exchange rate, or strike price, is 2.0000 USD per GBP (or GBP/USD 2.00 as it is typically quoted) and the notional amounts (notionals) are £1,000,000 and $2,000,000.
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