I would like to understand in which case there is a presence of FX delta risk factor when trading a Cross-currency basis swap.

By FX Delta, I mean the sensitivy of my swap PV with respect to FX Spot moves.

Let’s consider those cases :

  1. Standard Xccy basis (float/ float) with USD leg resettable. Initial and final exchange.

  2. Xccy basis (float/float) non-resettable. Initial and final exchange.

  3. Xccy basis (float/float) non-resettable. Final exchange only.

  4. Same case than 2. and 3. but fixed-float or fixed-fixed.

My intuition is that in case 1. there is a FX delta because I have a FX fixing (FX risk) every quarter, but it would be quite small if the basis risk is also small. How do we explain the relation between basis risk and FX?

For 2. I would say that if my initial and final exchange are same I don’t hold FX risk hence no FX delta. But I struck the same FX over the tenor (lets say 10Y) so I have an opportunity cost when FX moves? Also in practise I have seen trader exchanging FX delta when we unwind package of xccy reset and non-reset together so I am confused...

For 3. my intuition is that I would need to trade a FX spot to replace the initial exchange missing.

For case 4. Only difference is the fixed component adding IR risk on top of the basis risk.

Maybe someone trading this product or a Quant approach can help me understanding better?


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