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Apologies for the rather broad question! Essentially, I wanted to ask how to build an FX forward curve from scratch. I have some basic understanding of interest rates and discounting but I am lacking the theoretical and practical knowledge to figure out how it fits together to result in an EUR/USD SP to 2Y curve, for example. How roles do instruments like IMM, OIS, etc play in it?

Any links to/names of books, courses, tutorials, etc will be more than welcome. There is quite a lot of information out there but I am really struggling with where to start.

Thanks a lot in advance!

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    $\begingroup$ What are you trying to do ? Nowadays you cannot use Covered Interest Parity to derive the pricing of FX forwards from the Domestic and Foreign interest rates. $\endgroup$
    – nbbo2
    Jun 9, 2022 at 19:59
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    $\begingroup$ Apologies again for the very broad question. Essentially, my question is imagining that I am hired as an FX forwards trader, put on a desk and told that I am in charge of X, Y, Z currency pairs. I have access to all market data imaginable, how do I go about pricing a forwards curve for those pairs? $\endgroup$ Jun 11, 2022 at 10:40
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    $\begingroup$ This answer doesn't help? It essentially makes it clear what is needed. If you have Bloomberg, you can play around with FXFA to analyze implied forwards. Any more detail will unlikely be possible without someone explaining their proprietary system. Apart from market makers, everyone will essentially look at quoted FX fwds (e.g. IMM dates have their own quoted tenors on systems like BBG). So unless a market maker hires you, there is no need to delve into details. If they do, they will show you what you need to know. $\endgroup$
    – AKdemy
    Jun 11, 2022 at 12:56

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I'm not sure whether below answer is you want. FX Curve, in general, means the curve is implied from based on USD by Interest Rate Parity (IRP). FX Curve(7D) = ((1+swap point/spot)*(1+USDCurve * 7/360)-1)*local currency convention(360or365) / 7

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  • $\begingroup$ Thanks for your reply! My question is more related to what (market) data do I need to build a curve; the prices of which instruments are going to play a part in the curve? I hope this makes a bit more sense and again sorry for my rather undetailed question. $\endgroup$ Jun 11, 2022 at 10:43
  • $\begingroup$ In general case, FX trader looks at quotes (currency code+tenor, AUDSW=, AUD1M=,...) at Reuters. This quotes are called "RIC" and "swap points", which are used to input above formula. $\endgroup$
    – Josh Chien
    Jun 16, 2022 at 13:45

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