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Currency swaps may differ from interest rate swaps in that currency swaps May have an upfront exchange of notional amounts of both currencies Primarily trade
Currency swaps may differ from interest rate swaps in that currency swaps
- May have an upfront exchange of notional amounts of both currencies
- Primarily trade on regulated exchanges
- Can only be executed when one leg of the swap is the U.S. Dollar
- Are exclusively traded between non-financial market institutions
At initiation, the present value of a swap is typically zero for both counterparties. As time passes, the value of a swap changes mostly due to:
- Implementation of more advanced swap valuation models
- Forward rates that were used to initially price the swap change
- The credit risk of each counterparty is perceived to have changed
- Collateral exchanged or received during the clearing process
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