4

I’ll do my best. 1) the start date for a standard currency basis swap is I believe 2 business days after the trade date. This allows time for the banks to set up the payment instructions for the initial exchange of notionals. 2) long the basis means you make money if the -41 becomes -40 in the market. This basis essentially measures the demand for ...


3

The ATM is an outright position (long 50 delta put and 50 delta call) so the main exposure is vega. It is the riskiest of the three, and demands a higher bid-offer spread from market makers to compensate them for the additional risk. The RR is a spread position (long 25 delta call, short 25 delta put) with zero vega, the main exposure is skew. Because the ...


3

I do it very simply. First, figure out the swap rate for each currency. Let's do those for 1y EUR/USD: 1) y US swap is 1.8104 2) y EUR swap is -.5432 mid (yes, negative) 3) look at the implied yield for the FX spot vs the 1y fwd. Spot is 1.1052 and 1y is 1.1341275. That gives you .236075 EUR more at settlement, which is 2.136% rate of 2.136 - [us ...


3

The general way to do this is first take observed market spreads for various tenors, then calibrate a discount curve such that the foreign leg plus the spread at each tenor discounted at the calibrated curve is equal to the local currency leg discounted at OIS. Then you can calculate a spread from the curve for any given tenor using the two discount curves.


3

A recent report by the BIS provides a good explanation: Because they are hedging a net US dollar liability, Australian banks on balance supply US dollars in the cross-currency swap market. That contrasts with banking systems that are funding net US dollar assets and so, on balance, demand US dollars in the swap market. This structural difference means that ...


2

I just found one possible reason online: markets like Australia and New Zealand where local interest rates are relatively high and there is little interest in offshore investment.


2

In addition to @dm63's answer maybe two references that are useful: I am not a FI/rates expert, but this book really helped me understand the basics of how things work in practice (not just in theory). And a nice introductory paper specifically on cross currency swaps.


2

First, we will write down the payoff of the mark to market basis cross currency swap. Second, we will do some exploring. Third, we hope that our exploration will be fruitful so that we can understand where we need to calculate the convexity adjustment. The forward curves required are: Domestic LIBOR curve $L^\text{d}$, e.g., if the domestic currency is ...


2

First please keep in mind that EUR (and GBP) are quoted "cable". So if the USD EUR exchange rate is quoted as 1.1, for example, that means that (quotation or countercurrency) USD 1.1 = (base currency) EUR 1. Most other currencies are quoted the other way, so if the USD CHF rate is 1.1, that means CHF 1.1 = USD 1. An investor is "long" an option means ...


2

This NEBR paper argues that the anomaly reflects a mismatch between observable but imperfectly matched market rates (for FX and interest rates) - versus unobservable (and thus untradeable) "risk-free", where arbitrage is not possible and CIP = 0. De facto, this creates a bias for countries with higher interbank rates to exhibit more positive xccy ...


2

One thing that comes to mind are the USDEUR FX forward rates used as input. Those should be consistent with the curves you're building, ie. $F_{X{$}}(t_0,f_i) = S_{X{$}}(t_0) \cdot P_X(t_0,a_{i,s}) / P_{$}(t_0,a_{i,s})$


1

This is an unclear question so let me first state my assumption of what you are asking. You work for organisation C and are asking from organisation C's persepctive: C has, initially, a 10y10y cross-currency EUR/USD basis swap with counterparty B. C is coordinating a novation to 'step out' of the trade and counterparty A will replace them. B is a remaining ...


1

Basis is almost always calculated on the non-usd leg - which explains why your signs are the wrong way around.


1

Say a US investor with 1mm USD wants to buy a 10Y Volkswagen bond in EUR priced at 100 EUR with a 5% coupon. First that investor needs to acquire EUR for purchase without exposing themselves to FX risk. To do this they execute a cross-currency swap. The investor will pay 1mm USD and receive say 1.1mm EUR with the agreed cashflows: he will receive USD 3M ...


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