1
$\begingroup$

I usually read statements as the below:

"Bank A recommends long positions in the yuan against the Singapore dollar"

How are these trades usually implemented? Borrow SGD and convert into CNY (FX spot) or through derivatives (eg FX forwards/swaps)?

$\endgroup$
3
$\begingroup$

Adding some details:

CNY is problematic because it is a nonconvertible currency (that is why user42108 suggests using the offshore yuan CNH instead, or a nondeliverable forward on CNY).

See this post Spot/Next and Tom/Next FX forward swaps for more detail about T/N Swaps and how they can be used to postpone delivery of a spot transaction by 1 day (effectively keeping the position open as long as you like) while paying/receiving an interest rate differential. This is how much FX speculative trading is done. Effectively you are borrowing one currency and lending the other, but indirectly via the FX market.

$\endgroup$
1
  • $\begingroup$ can you share a numerical example on how T/N swaps are used to roll spot positions? For example if you go long EURUSD (we use deliverable ccys for sake of simplicity). thanks $\endgroup$ – Student Apr 26 at 16:47
2
$\begingroup$

SGDCNH spot+swap or SGDCNY NDF.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.