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FRM Part I · FRM Exam Part I · Foreign Exchange Markets

Which description best matches an FX swap transaction in the foreign exchange market?

An FX swap is the simultaneous buying and selling of the same currency pair for two different value dates, typically spot against forward. It differs from a spot trade, an option, or a cross-currency interest rate swap involving periodic interest exchanges.

  1. ASimultaneous purchase and sale of one currency against another for two different value dates, one spot and one forward or both forwardCorrect
  2. BExchange of fixed-rate interest payments in one currency for floating-rate payments in another currency over several years
  3. CA single outright purchase of a currency for settlement two business days later at the prevailing rate
  4. DAn exchange-traded contract giving the right but not the obligation to buy a currency at a set rate

Explanation

An FX swap combines two opposite exchanges of the same currency pair on different value dates, commonly spot against forward. The second option describes a cross-currency interest rate swap, the third a spot trade, and the fourth a currency option.

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