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FINANCIAL MARKET COURSES

FX Forward Market – Calculating Swap/Forward Points & Cross Rates

Forward points, also known as swap points, are the price paid by the holder of the higher interest-bearing currency to a counterparty holding the lower interest bearing-currency for the period of a forward FX transaction (outrights and FX swaps). This course explains how the forward rate, and by extension the forward points, can be derived from the interest rate differential between two currencies. For currency pairs not involving US dollar (cross rates), market participants must use the process of triangulation. The course describes in detail how to do this.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Calculate the forward points for a currency pair

    Identify the forward points on a forward outright

    Calculate a forward cross rate

  • COURSE OUTLINE

    Topic 1: Calculating Forward Points

    Interest Rate Differentials

    o Interest Differential & Forward Rates

    Calculating the Forward Rate

    o Calculating the Forward Rate

    • Formula

    • Example

    o Calculating Forward Points

    Adding & Subtracting Forward Points

    o Rule

    Effect of Interest Rate & Yield Curve Changes

    Topic 2: Forward Outrights

    Forward Outrights

    o Overview

    o Quotations

    o Example

    Topic 3: Forward Cross Rates

    Forward Cross Rates: Calculations

    o USD as Base Currency for Both Quotes

    o USD as Base Currency for One Quote & Variable Currency for Another

    o USD as Variable Currency for Both Quotes

    Forward Cross Rates: Typical Quotation Screen

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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