Short date foreign exchange

Source: Swiss Bank Corporation - now UBS

one month in the future are known as 'short-dates'. An illustration of some short-dated transactions is shown in Figure 8.4 courtesy of Swiss Bank Corporation.

The terminology used in the short date foreign exchange forward market is based on the deposit market, as forward swaps are quoted on the basis of the relevant deposit/loan rates. In the deposit market the following abbreviations are used:

Overnight A loan or deposit from today until 'tomorrow'

Tom-next A loan or deposit from tomorrow to the 'next' day (spot)

Spot-next A loan or deposit from spot until the 'next' day

Spot-a-week A loan or deposit from spot until a week later

In the deposit market 'tomorrow' means the 'next working day after today', and 'next' means the 'next working day following'.

In the foreign exchange market the swaps are calculated:

Overnight A swap today against 'tomorrow'

Tom-next A swap 'tomorrow' against the 'next' day

Spot-next A swap spot against the 'next' day

Spot-a-week A swap spot against a week later

When referring to outright forwards rather than swaps, we usually mention things such as 'value today', 'value tomorrow', 'value spot-next', etc. When discussing swaps and outright forwards for short dates longer than spot, the same guidelines apply as those that are used to calculate longer dates.

It is, however, easy to become confused when trying to calculate rates for forward dates that are shorter than spot (e.g. 'value today' and 'value tomorrow'). The bank will still buy the base currency (sell the variable or quoted currency) on the left-hand side for the far date, and sell the base currency (buy the variable or quoted currency) on the right for the far date. But the spot value date is the far date, and the outright date is the near date.

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