Most of the turnover in the short-dated FX market is in swaps. During the financial crisis that began in 2007, banks and financial institutions were reluctant to extend credit to each other for any length of time due to the increased fear of a counterparty default. The effect of this was that money market and foreign exchange transactions were concentrated in much shorter maturities. This in turn increased short-dated turnover and made that market more efficient and attractive to all users.
The size of the turnover in short-dated outrights is minimal compared to turnover in the FX swap market. Outright transactions are only used to cover last-minute exposures. Company treasurers should ensure that most of their FX needs are covered in the spot or forward outright markets.
Review Question
A bank client has an urgent need to buy USD and sell GBP value today. Their New York bank quotes them the following short date rates. At what outright price will they trade?
Submit your answer correct to eight decimal places.