# Tag Info

5

When you look at EUR/USD Cross Currency basis historical chart, you will notice that it was very similar in magnitude before 2008 to what it is now: in other words, there has always been some cross-currency basis, it hasn't really gotten more pronounced post 2008. Many people (even seasoned industry professionals) believe that the Cross-Currency basis has to ...

4

In addition to Dimitri's comment and user35980's answer above, the following comes to mind: so much USD has been printed by the FED already and now with Democratic majority likely, more fiscal stimulus and even more FED balance sheet expansion is being priced in over the past few days. Because the market is awash with USD liquidity, everyone who sits on USD ...

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As for the book, the best one I have come across is Pricing and Trading Interest Rate Derivatives by Darbyshire, although it's a bit pricey (indeed as most finance books are) (https://www.amazon.com/Pricing-Trading-Interest-Rate-Derivatives/dp/099545552X). I used to trade Xccy Basis Swaps (which is just another name for Cross-Currency Swaps): let me try to ...

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The CVA on a cross currency swap comes mostly from the final exchange (being the biggest flow). If you as an end user are paying the EUR, then the bank is receiving the EUR a d paying the USD. They will see that this position is a net receivable, because EUR is more valuable on a forward basis than spot. Receivables attract a higher CVA than payables. (...

3

In FX swaps and FX forwards, the following formula holds: $$S_{AUD/USD}(1+r_{USD})=(1+r_{AUD}+r_{basis})F_{AUD/USD}$$ The Spot $S_{AUD/USD}$ and the Forward $F_{AUD/USD}$ are traded and their prices are observed in the market. If you take the USD OIS rate for $r_{USD}$ and also the AUD OIS rate for $r_{AUD}$, you will be able to extract the term $r_{basis}$ ...

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To get an accurate answer you probably won't be able to get around using a proper pricer and comparing the two methods. To contrast the two approaches: FX Forwards: convert all cashflows from CCY1 to CCY2 using the interpolated FX forwards, then discount all payments at a single $YTM_{CCY2}$. XCCY: create a cross currency swap where the paying CCY1 leg ...

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The xccy basis is a measure of the deviation from covered interest parity. This is a fancy way of saying how much more demand for USD over MXN (or vice versa) there is in the market. Assuming the USD/MXN basis is negative (as it usually is for EM ccys): if the basis widens then it's a sign of mkt stress (risk-off), and if it tightens then it's a risk-on ...

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I think it's possible. When you say the RFRs are flat, I think we can interpret that as flat for all maturities, including the 1y. So from the 1y Forward rate, we can back out the spot rate via the following relationship between the Spot, Forwards and the RFRs: $$S_{EUR/USD}(1+r_{USD})^n=(1+r_{EUR}+r_{Basis})^nF_{EUR/USD}$$ Above, $r_{Basis}$ stands for the ...

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It is not very clear what you are asking. On fixing date, the floating leg has a duration that is approx. the duration of a ZCB with maturity equal to the next payment. Anyway, the pricing of the floating leg is always the discounting of forward rates so the fixing date has not a direct impact on the price but rather on the interest rate sensitivity.

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I believe that cross currency basis swaps are marked to market always. The issue is that theoretical value for an xccy swap is always 0. but they don't trade at 0, that's why there is a premium for this kind of trade. On the fixing side - you are receiving and paying float. So the value is 0. The issue is that the spread is based on market demand, and ...

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The formula simply states that the XXXEUR forward FX are the same under CSA.EUR collateralization and under CSA.USD collateralization. It holds if disregarding the theoretical convexity adjustment that would result from non zero covariance between the XXXEUR FX and the EURUSD basis. Disregarding the adjustment is standard market practice.

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Why did you not ask the help desk? F1 F1. I think the answer is that it's simply a deficiency in BBG's system. CSA curve is not built for TRY it seems. OIS should work though. May well be this curve also was not developed when you posted this.

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Because the formula contains the expression max{currency bases}. Whenever there is a max, there’s an option. Eg a regular call option payout max{0, S-K}. The formula expresses only the intrinsic value of the basket option on the currency bases, not the time value.

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We’ve used data from TradeWeb before and the data quality was excellent. I believe the historical data goes back to 1998. Alternatively, a lot of bank research portals have this as well. For example, Morgan Markets have this going back to the early 1990s. This has the advantage of being “free,” although you need to be a client to access. For even longer ...

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The way I rationalize it is to consider the different meaning for what Libor was pre and post the GFC. Pre the GFC, Libor was the price of USD for European banks. They are structurally short USD and long either GBP or EUR. The instrument of choice for funding this shortage was the FX swap market. This relationship bled into the perceived cost of funding USD ...

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The question is subjective. Suppose you have a USD based accounting framework and an interest rate swap in NOK. At the accounting period 1 the USDNOK is 10, and the IRS is worth 100 NOK (10 USD). At the accounting period 2 the USDNOK is 11, and the IRS is worth 110 NOK (10 USD). In your USD accounting framework there is no reported PnL, but clearly this is ...

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I ran a script to measure the timestamp delta between top-of-book change events on a quote feed for an exchange traded FX contract (~80000 trades per day). The feed itself provides microsecond precision. 7% of top of book changes were less than 10 microseconds apart. 46% of top of book changes were less than 1 millisecond apart. As you can see from this ...

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I would argue (millisecond-resolution aside) not only is it possible but common in FX. Unless you're trading with exactly one counterparty and preagreed sizes, most streams are composites of several liquidity providers and several sizes. To elaborate: For example in Bloomberg by default you subscribe to the NY composite stream (CMPN), you could disentangle ...

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If we work through this practically, a hypothetical derivative under IFRS9 cash flow hedge should be representative of the underlying, henceforth the MTM CCS must be mark to market on the currency side opposite to that of the hedged instrument. For example, a EUR corporate might issue a yankee bond in 100mm USD and cross currency swap it back to EUR under a ...

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Implied FX-OIS basis should be pretty simple to "compute", it is the classical "Cross-currency" basis observed in FX Swaps & FX Forwards, that can be backed out when plugging in OIS rates (instead of Libor rates). No Arbitrage between FX Spot & FX Forwards: Taking EUR/USD as an example, we must have for no arbitrage: (1+r_{EUR}) ...

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Let me add that the USD-JPY Xccy basis is a very liquid instrument that is quoted by market makers: therefore, the Xccy Basis is not "priced" or "solved for", it is directly quoted (somewhat independent of other instruments) and the USD-JPY basis would actually be used as an input into other pricing models. In order of liquidity, I would ...

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