Question on STIR.
Suppose we sell a 3m JPY swap with spot start date, and we are able to back out the 3m implied JPY forward points (hence swap points), using 3m JPY OIS (3m TONA) and 3m USD OIS (3m Fed Fund rate), using covered interest parity formula.
- What does it mean to sell 3m JPY swap? Do we buy USD, sell JPY in the near leg, and in the far leg (i.e. 3m), we sell USD, buy JPY?
- How will we make profit? Should the swap points be more negative or positive?
- Where does the XCCY basis come into play?
- What is FX-OIS?
- What is the trilemma between SOFR, FF and FRA, or even XCCY basis for that matter? And why should we care about them when pricing FX Forwards or Swaps?
- What's straight and split?
- How can you hedge a FX swap without doing the exact reverse? For example, how to hedge 3m JPY swap sell?
- Slightly unrelated, but related: if our portfolio is +ve DV01, are we paid (or are we a payer)? And why?