Features:
(1) buying and selling are consciously carried out at the same time.
(2) buying and selling in the same currency and the same amount.
(3) The delivery period of buying and selling is different.
Swap trading is different from spot trading and forward trading. Spot and forward transactions are single, either spot transactions or forward transactions are not carried out at the same time. Therefore, it is usually called a single foreign exchange transaction, which is mainly used for foreign exchange transactions between banks and customers. Swap transactions involve spot transactions and forward transactions or simultaneous transactions, so they are called compound foreign exchange transactions, which are mainly used for foreign exchange transactions between banks. Some large companies also often use swaps for arbitrage activities.
The purpose of swap transactions includes two aspects: one is to smooth out foreign exchange positions and avoid the risks brought by exchange rate changes; The second is to make use of the exchange rate differences in different delivery periods to make profits by buying cheap and selling expensive.
I. Types of swap transactions
1. spot forward swap
Spot-to-forward swap refers to buying or selling spot foreign exchange while selling or buying forward foreign exchange in the same currency. This is the most common form of swap transaction.
According to the different participants, this transaction form can be divided into two types:
(1) Pure swap transactions refer to transactions involving only two parties, that is, all foreign exchange transactions take place between one bank and another bank or corporate customer.
(2) Decentralized swap transactions refer to transactions involving three participants, that is, banks conduct spot transactions with one party and forward transactions with the other party. But in any case, banks actually conduct spot and forward transactions at the same time, which is in line with the characteristics of swap transactions. The purpose of this transaction is to avoid risks and profit from exchange rate changes.
For example, a bank in the United States sold 3.36 million marks and earned 2 million dollars at the exchange rate of 65,438 dollars +0 = 0.68 Deutsche Mark. In order to prevent the mark from appreciating or the dollar from depreciating in the future, the bank sold spot marks and bought three-month forward marks at the exchange rate of 65,438 dollars +0 = 0.78 Deutsche Mark ... In this way, although the spot marks were sold, the forward marks were added to make the bank's. Although the bank will lose some discount in this forward transaction, this loss can be compensated from the higher interest rate of the US dollar and the bid-ask difference in this spot transaction.
In swap transactions, the factor that determines the scale and nature of the transaction is the swap transaction or swap interest rate. This exchange rate is the exchange rate mentioned earlier. Swap exchange rate itself is not suitable for foreign exchange transactions, but the difference between spot exchange rate and forward exchange rate or forward exchange rate and spot exchange rate, that is, forward discount or discount. The relationship between swap interest rate and swap transaction is that if the forward premium (discount) value is too large, swap transaction will not occur. Because the transaction cost at this time is often greater than the income that the exchange can get. Swap exchange rates can be divided into buying exchange rates and selling exchange rates.
2. One-day swap
One-day swaps can be divided into today/tomorrow, tomorrow/next and spot/next. The first maturity date of today-tomorrow swap is today, and the second swap date is tomorrow. The first maturity date of the day after tomorrow swap is tomorrow, and the second maturity date is the day after tomorrow. The first maturity date of spot swap is on the value date of spot foreign exchange transaction (that is, the day after tomorrow), and the second maturity date is a future date (for example, the spot swap is 1 month forward, and the forward maturity date is the 30th day after the spot delivery date).
3. Forward-forward swap.
Forward-to-forward swap refers to buying and selling two forward foreign exchange with the same currency and different delivery periods. There are two ways of this transaction: one is to buy forward foreign exchange with short delivery period (such as 30 days) and sell forward foreign exchange with long delivery period (such as 90 days); The second is to buy long-term forward foreign exchange and sell short-term forward foreign exchange. If a trader sells 654.38+100,000 30-day forward dollars and buys 654.38+100,000 90-day forward dollars at the same time, this trading method is forward-to-forward swap trading. Because this form can enable banks to take advantage of favorable exchange rate opportunities in time and profit from exchange rate changes, it has been paid more and more attention and used.
For example, a bank in the United States should pay 6.5438+0 million pounds after three months, and at the same time, another income of 6.5438+0 million pounds will be received after 654.38+0 months. If the market exchange rate is favorable, forward-to-forward swaps can be conducted. Let the exchange rate of foreign exchange market on a certain day be:
Spot exchange rate: ~ L = USD 1.5960/ 1.5970.
1 month forward exchange rate: 1 = USD 1.5868/ 1.5880.
3-month forward exchange rate: ~ 1 = USD 1.5729/ 1.5742.
At this time, banks can conduct the following two kinds of swap transactions:
(1) Conduct two "spot-forward" swap transactions. The pound to be paid after three months is bought in the forward market (with a term of three months and an exchange rate of $65,438 +0.5742) and then sold in the spot market (with an exchange rate of $65,438 +0.5960). In this way, each pound can benefit from 0.02 18 USD. At the same time, the pound received one month later is sold in the forward market (term 1 month, exchange rate 1.5868 USD) and bought in the spot market (exchange rate 1.5970 USD). In this way, you must post $0.0 102 per pound. When the two transactions are added together, the profit per pound will be 0.0 1 16 USD.
(2) Direct forward-to-forward swap transactions. That is to say, if you buy a 3-month forward pound (the exchange rate is 1.5742 USD) and then sell a 1 month forward pound (the exchange rate is 1.5868 USD), you can get a net profit of 0.0 126 USD per pound. It can be seen that this kind of transaction is more favorable than the previous one.
Second, the role of swap transactions.
Because swap transactions are conducted with different delivery terms, the risk of exchange rate changes caused by different time periods can be avoided, which has played a positive role in international trade and international investment. Specific performance in;
1. Hedging is beneficial for importers and exporters.
For example, a British exporter signed a contract with an American importer, agreeing to pay in US dollars four months later. This means that British exporters will get a dollar spot in four months. During this period, if the exchange rate of the US dollar falls, the exporter will bear the risk. In order to preserve the value of the loan, the exporter can sell the same amount of four-month forward dollars immediately after the transaction is completed, so as to ensure that the export income denominated in the exporter's local currency will not suffer losses due to the exchange rate changes four months later. In addition to importers and exporters, multinational companies often use hedging to keep the domestic value of foreign currency assets and bonds on their balance sheets unchanged.
In essence, there is no difference between hedging and swap transactions. Because in hedging, the delivery period of the two transactions is different, and this is the exact meaning of swap transactions. Anyone who uses swaps can also get the benefit of hedging. But in operation, swap transaction is different from hedging, that is, in hedging, the time and amount of two transactions can be different.
2. It is beneficial for securities investors to carry out currency conversion and avoid the risk of exchange rate changes.
Swap trading enables investors to convert idle currency into needed currency and use it to gain benefits. In reality, many companies, banks and other financial institutions use this new investment tool for short-term foreign investment. In this short-term foreign investment, they must exchange their own currency for another country's currency and then transfer it to the investment country or region. However, when the funds are recovered, investors may suffer losses due to the fall of foreign currency exchange rate. Therefore, swap transactions must be used to avoid this risk.
3. It is beneficial for banks to eliminate exchange rate risks arising from separate forward transactions with customers.
Swap transactions can help banks eliminate the exchange rate risk of separate forward transactions with customers, balance the delivery date structure of spot transactions and forward transactions, and rationalize the bank's asset structure.
For example, a bank must sell the same amount of forward pounds with the same delivery date in order to avoid risks and close its position after buying 65.438 billion forward dollars from customers for six months. However, in the inter-bank market, it is more difficult to sell individual forward foreign exchange directly. Therefore, the bank adopts such an approach: first, it sells 6,543.8+0,000 spot dollars in the spot market, and then makes an opposite swap transaction, that is, it buys 6,543.8+0,000 spot dollars and sells 6,543.8+0,000 forward dollars for a period of six months. In this way, the spot dollar trading offset each other, and the bank actually only sold a six-month forward dollar, which equalized the dollar overbought in the transaction with customers.