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I'm looking for a precise definition of how FX outright delivery dates are computed.

Chapter 1 of the book 'Foreign Exchange Option Pricing: A Practitioners Guide' (this chapter can be found here) outlines quite precisely the rules for calculating expiry and deliver dates for FX options in Section 1.5, but it is not clear to me whether or not these rules also apply to calculation of delivery dates of FX outrights?

In particular, the above reference (along with Wikipedia) state that for outrights less than a month (terms of days or weeks), the delivery date is obtained by adding the number of days to TODAY, and then adjusting the resulting date forward. However other sources indicate that you should instead add the number of days to the SPOT date, and then adjust the resulting date forward. Which is correct?

Is there a golden source for these rules for outrights/swaps, perhaps something along the lines of The 1997 ICOM Master Agreement Guide document for FX options?

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Firstly, in FX, it all depends on the currencies. As an example, CAD is generally traded t+1 against USD, but is also frequently traded t+2. A EUR/CHF forward can take into account USD holidays (to permit arbitrage or take into account a position via USD), or ignore them.

Basically it's an OTC market and the less common the trade, the more variable the specifics.

Variables (non-exhaustive):

  • Country of trade
  • Inclusion of major currency holidays (USD, EUR)
  • Holidays of traded currencies
  • Spot (t+?) for both currencies
  • Weekend days
  • Deliverable or non-deliverable (non deliverable can choose to ignore currency holidays)

It is down to the traders (or these days their e-trading platform) to decide exactly which dates they want to trade for.

If you're thinking 'then how can I interpret market data', then you're on the right lines; there are striaghtforward conventions, but I'm afraid not all sources quote the same way. G10/11 are fairly standard (except CAD), but outside that it's down to market knowledge.

Generally: Use t+2 except for specific pairs, include USD holidays, include holidays and weekends for both currencies. And check your sources.

SW, 2w...

For a term stated in days or weeks, jump to that offset from the start date (e.g. SW, 7 calendar days from the spot date) and then adjust (usually rolling forward) for holidays in either currency (or again USD if required).

1m, 2m... 1y, 2y

Calendar periods in whole months or years follow a similar procedure to weeks except if the end date lands in a following month - then there is a choice of month end rule to use. A common one in G11 currencies is end-end, where you roll back to the last business day of the matching month (so 1m goes 31 Jan - 28 Feb not Mar).

Often this is used to match end-ness of the start date, so 28 Feb 1m would land 31 Mar, or even 26 Feb to 31 Mar if 26th is a Friday.

Why end of month rules?

Holding money in one or other currency (particularly USD) over a month end is usually different to other days, as a result of accounting and regulatory requirements, and whether the required currency is in demand or not. So to ensure that the trade correctly covers month ends or not, end of month rules ensure that small differences in calendars from one month or year to another don't result in additional exposures, i.e. no surprises.

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  • $\begingroup$ Thanks Phil, I agree there are a lot of factors to consider. However, I was trying to ask: calendar issues and such-like aside, are delivery dates for short dated outrights (say, 1W) computed by 1) adding a week to today, and then adding T+2 business days, or, 2) adding a week to the spot value date? $\endgroup$ – mpeac Sep 6 '12 at 8:28
  • $\begingroup$ Ah, that's a more specific question. SW is calculated by adding a week to Spot, and then rolling on until you have a valid business day in all the appropriate markets. $\endgroup$ – Phil H Sep 6 '12 at 11:50
  • $\begingroup$ I have an additional question on your explanation of 1W above, say we are looking at 1M, what happens when spot is on e.g. the 31st of Jan. Would it become the 28th or 29th of Feb or some other day in March? $\endgroup$ – EddyG Aug 12 at 15:07
  • $\begingroup$ @EddyG I've added some detail on ends of months to the answer, hope that covers it. Unfortunately hard to be more specific without knowing which currencies are involved as it's by convention and not a universal rule. $\endgroup$ – Phil H Aug 14 at 7:07
  • $\begingroup$ This is very helpful, many thanks for the additional explantion! $\endgroup$ – EddyG Aug 14 at 7:13
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The convention seems to be to count forward number of days from spot to value date , taking into account currency holidays in both currencies. So the answer is, if it’s a 1M forward, you count 1M from the spot date (which can be a T+1 or T+2 settle) to the next business day month. So if you are dealing with usdCAd which has a T+1 settle and today is Friday June 30th, if Monday is a usd holiday and Tuesday is cad holiday, wednesday is USd holiday (independence day) so the contracts spot date is on Thursday July 5th. The value date is August 5th (1M contract). But August 5th is on a weekend, so move over one good business day. August 6th is your final value date. Count number of days between value date and spot date. That’s the number of days to expiry to your forward contract

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