Pricing of Fx Swap and Fx Forward in excel

Question

How to do pricing of FX Swaps and Fx Forward in excel can anyone show the same which will match the bloomberg.I am calculating by adding or subtracting the fx fwd points in fx spot rate to arrive at forward if anyone have abything else please share the same . I am also looking at bloomberg syntax for fx fwd and fx swaps . I am doing it by putting QRM and after that the foreign exchange .

Answer 1

You can check the prices of FX forwards on Bloomberg by typing EURUSD Curncy FRD<GO>

In Excel, you can use Bloomberg functions to get the prices (forward points or outright prices). For Example, to get the 6M FX Forward for the EURUSD, you can enter the formula:

=BFxForward("EUR";"6M";"midoutright")

Theoretically, an FX Forward can be calculated with the rate differential like so:

$$FX_{Forward} = FX_{Spot} \times \frac{(1+ r_{domestic} \times n)}{(1+ r_{foreign} \times n)}$$

or, if you have rates with continuous compounding:

$$FX_{Forward} = FX_{Spot} e^{[(r_{domestic} - r_{foreign}) \times n]}$$

The FX Swap will just be an FX Spot + an FX Forward of symmetric signs or two FX Forwards of symmetric signs if it's forward starting.

However, you should be aware that this is a theoretical formulation and if you try to replicate the market prices of FX Forwards with simple deposit rates, you will not arrive at the same result. And this does not represent an arbitrage because you can't really get financing and/or invest unlimited amounts at these rates if at all.

For example, consider you have a 6 month FX Forward on the EURUSD. If you try to replicate this forward using the USD Libor 6M and the Euribor 6M, you will NOT get the market price.

What you can do is given a price of an FX Forward and a rate on one of the currencies, get the market implied rate of the other one.

There is a Bloomberg function to get the implied rates: FXFA <GO>.