The Mexican company will be “selling and buying” the base currency, USD, in the swap deals. So, it will sell USD at mid-spot (12.9270) in the near leg and then in the far legs purchase it back at the forward rate (mid-spot + swap points). The swap offer points are 0.0998 (three month), 0.2004 (six month), 0.2995 (nine month), and 0.4025 (twelve months). This equates to forward prices of 13.0268 (three month), 13.1274 (six month), 13.2265 (nine month) and 13.3295 (twelve month).
Alternative Strategies
The customer could have made five individual trades to achieve its objective, one spot and four outrights. However, this is a fairly large amount and locking in the spot rate for the total means it is all done at the same rate. Doing it separately may result in different spot rates for each deal.
Spot prices are volatile and move up and down very quickly. Swap prices tend to remain static for much longer periods and so this client was probably concerned that spot could move but was not really worried about the swap prices moving by any significant amount, indeed if at all.
Use of Forward Outrights by Fund Managers
Forward outrights are used to hedge the large trades initiated by major investment or hedge fund entities. The mechanics of trading are exactly the same as those used by corporate companies. Here we look at a list of the reasons why fund managers use forward outrights and how they use them. While fund managers may have many more uses for forward outrights, these are the more common uses.