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How exactly do you trade the turn of the year/quarter effect (also known as last day-first day effect). How do you track this data, is it directly quoted in the market or is it interpolated?

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It would be in the form of an FX swap, with the first leg on the last day day of the month/quarter , and the second leg on the first day of the next month. In swap you exchange the notionals on the first leg date, and then reverse exchange the notionals with swap points adjustments on the second date. The swap points reflect the interest rate plus the impact of supply/demand.

It is an OTC market and this would be standard-ish quote.

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  • $\begingroup$ It is thought that this anomaly arises because banks are reluctant to commit their capital to an FX deal that ends after the current quarter end. So the way to take advantage of it would be to go against this tendency and do a swap that does go into the first day of the next quarter. $\endgroup$ – noob2 Nov 23 at 23:17

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