Products
FX Derivatives
FX forwards, FX swaps, cross-currency swaps and currency options, plus exotics such as TARFs and PRDCs.
Introductory3 pagesPractitioner5 pagesAdvanced3 pages
1FX Forwards and FX Swaps
- IntroductoryFX ForwardsIf an importer that must pay 1 million US dollars in 6 months agrees to buy them at 148.00 yen per dollar, its payment is fixed at 148 million yen.
- PractitionerCovered Interest Parity and FX Forward PointsThe forward exchange rate is set by the cost of a combination of trades that borrows yen, buys dollars at the spot exchange rate, and deposits the dollars.
- IntroductoryFX SwapsThe same amount of foreign currency is bought and sold in opposite directions in the near leg, which settles first, and the far leg, which settles later.
- PractitionerNon-Deliverable Forwards (NDF)An NDF with a notional amount of USD 10 million and a contract rate of 84.00 rupees per dollar involves no delivery of rupee or dollar principal.
- PractitionerCross-Currency SwapsThe principal exchange at maturity also uses the spot exchange rate at the start, so a trade that starts with USD 100 million and 15 billion yen exchanges the same amounts back at maturity.
2Currency Options
- IntroductoryFX OptionsThe right to buy US dollars by paying yen is a USD call from the dollar side and a JPY put from the yen side, and both names describe the same right.
- PractitionerFX Option Market ConventionsCurrency option prices are quoted as implied volatilities in the Garman-Kohlhagen model, and the strike is backed out from the specified delta.
3FX Exotics
- PractitionerOverview of Exotic FX ProductsA currency option with a knock-out has a lower premium, but the right disappears if the exchange rate touches the knock-out level.
- AdvancedFX Barrier OptionsA double knock-out disappears if either the upper or the lower barrier is touched, so more paths end the right than with a single barrier.
- AdvancedTarget Redemption Forward (TARF)Each payment depends on the gap between the spot rate on the observation date and the strike, and on the unfavorable side the gap is multiplied by a constant that is often 1 or 2.
- AdvancedPower Reverse Dual Currency (PRDC)A PRDC swap exchanges an FX-linked coupon for a floating yen rate, over a long term that can reach 30 years or more.