Hot answers tagged convexity
First of all it is not clear what exactly you mean by right number, you definitely do not adjust forward swap rate. You probably mean adjusting euro dollar futures contract rates so that you can later use these values to fit the swap/forward libor curve. Reason for adjustment is simple. If you are short ED futures and rates go higher futures price drops ...
Yes, an adjustment has to be made and the reason is that a forward curve now will evolve and not be the same as the future spot curve. For example, a one year forward today is not equal to your spot rate a year hence. So spot curve discount factors have to be adjusted or directly replaced through the forward DFs. Convexity adjustments are already supposed ...
Yes, because you're entering into an implicit currency swap. There was an article in "Risk" some time ago on this topic: http://www.risk.net/risk-magazine/technical-paper/1935412/choice-collateral-currency
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