Introduction
FX swaps and forward outrights account for the majority of the multi-trillion dollar daily turnover in the foreign exchange (FX) market.
The popularity of these instruments is in part attributable to the flexibility.
The spot FX market presents constraints due to settlement typically taking place after only two days.
FX swaps and forward outrights have no such constraints as settlement can occurr on any number of pre-set dates after the spot value date.
The use of forward outrights by corporates and fund managers continues to grow with these instruments now commonly accepted as being an important part of their day-to-day activities.
Meanwhile, FX swaps are used by market participants to
- Manage foreign currency cash flows
- Move the maturity dates of existing FX positions and
- Cover existing short positions