The Power and Limits of Four Types of Swaps and Foreign Exchange Swaps
https://shinjukuacc.com/20200323-01/
Cross Currency Swap Basics
2020/03/21
What is CENTRAL BANK LIQUIDITY SWAP?
What does CENTRAL BANK LIQUIDITY SWAP mean?
2017/04/27
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The past few days,
Regarding the Cross Currency Swap
"I don't understand the difference from a foreign exchange swap,"
"I don't know the difference from cross currency swaps,"
, Etc., reader comments etc. came to be well received.
The trigger was
"Foreign exchange swap agreement between US and foreign central banks"
In
In the past this website
『What is Currency Swap and Forex Swap?1
通貨(CrossCurrency)スワップと為替（foreign exchange）スワップとは？1』
I have provided a brief explanation of these swaps at
However, in this article, it is necessary to read news,
I would like to mention again the minimum "difference between the four swaps"
"4 types of swap"
Korean media reported falsely "Cross Currency Swap".
However, as far as I checked, this swap
None of the media correctly reports "foreign exchange swaps"
In addition to Korean media, including Japanese media,
Most media is "currency exchange" "Cross Currency swap"
And so on.
However, Cross Currenc swap
And foreign exchange swaps are, by their nature, very different .
In the first place, what is commonly referred to as a "swap"
here are four types (charts).
Figure1 General representation ofswap
|
Classification |
Cross Currency Swap |
Foreign exchange swap |
|
Derivative transactions in the private sector |
Cross Currency Swap |
Foreign Exchange Swap |
|
International financial cooperation between monetary authorities |
Currency Swap Agreement |
Liquidity Swap Agreement |
(Source:Created by the author)
Derivatives
Foreign exchange swaps as derivatives
If you ’re in finance at a company or working for a financial institution,
As a currency hedging instrument
" Cross Currency swap" or "foreign exchange swap"
Many people have heard of the phrase
These are "interest rate swaps" and "basis swaps" in a broad sense.
Derivatives that belong to the same "swap transaction"
But when I start explaining this, I can write one book.
Of these, "foreign exchange swaps"
"Combination of spot forex trading and futures forex trading"
Financial regulators such as the Basel Committee on Banking Supervision
Called “ Foreign Exchange Swaps”
However, in Japan, "bisel" and "selby"
( FXS for short?)
A typical example of this currency swap would be a "dollar-yen bi-cell transaction".
This is, for example,
1. Transaction to sell a dollar and buy a dollar at 1 dollar = 100 yen at the spot (current)
2. Forward (for example, after 3 months)
1 dollar = 99 dollars to sell dollars and buy back yen
Two transactions at the same time.
This company sells yen and buys dollars for 1 dollar = 100 yen
Sells the dollar for $ 1 = 99 yen in 3 months and buys the yen
I will make a reservation for the transaction
For example, after three months, if the spot is in a strong state,
such as $ 1 = $ 80 ,
You can definitely sell dollars for $ 99 = $ 1 booked.
In other words, for companies,
Avoid foreign exchange risks with foreign exchange swaps
(Hedge)
It is very commonly used as a hedging tool.
It is not a derivative transaction under the Financial Instruments and Exchange Act
However, it is classified as a derivative transaction under corporate tax law and corporate accounting.
Foreign exchange swaps as derivatives
On the other hand, transactions that are very similar to foreign exchange swaps and economic characteristics,
It is a currency (Cross Currency) swap.
Generally called “ Cross Currency Swap”
I personally abbreviate it as "CCS"
However, among these, "front-end flat currency swap"
1. Exchange the currencies of both countries at the current exchange rate (spot rate)
(For example, give the other party a yen and receive a dollar),
Reverse exchange of currencies of both countries at the same rate at the expiration of the contract
(For example, give the other party a dollar and receive the yen)
2. Exchange interest rates in both currencies during the contract period
(For example, pay Libor + Alpha for 3 months and receive Libor for 3 months.
If this "alpha" part is positive,
This α is generally called “negative basis” etc.)
It is like a loan transaction between the two currencies for a certain period of time.
The major difference from the previous exchange swap lies in the following points.
1.Because interest rates are exchanged during the contract period,
It is possible to conclude a head-to-head flat contract
2. In order for financial institutions to trade currency swaps,
Generally set by the International Swaps and Derivatives Association (ISDA)
Master Agreement (Derivatives Comprehensive Agreement)
And a collateral agreement (CSA) required
3.Because it is equivalent to a derivative contract specified in the Financial Instruments and Exchange Act,
Margin regulations (margin regulations) are applied if certain conditions are met
4.Assuming the existence of a collateral agreement,
Theoretically, it is possible to conclude a contract for as long as you want
Compared to foreign exchange swaps,
Cross -currency cross currency swaps are easier,
There are also features such as
I will omit these circumstances because they are not so related to the main subject.