How To Calculate Swap And Forward Points

<p>Forward exchange rates are not calculated based on spot rates. They are market rates established through exchange by buyers and sellers of foreign exchange. I know nothing about the effect of IRP, however.</p>

<p>A spot transaction allows a company to buy/sell Currency as needed. The spot market is highly liquid and prices are easily determined. A Forward Contract allows you to buy or sell one currency against another, for settlement at a predetermined date in the future. Hence A Spot Forward Transaction means to Buy/Sell currency at the current price and also at a future price. SWAP are a small fees charged by brokers on positions/entries held overnight into a new trading day.</p>

<p id="isPasted">Forex spot transactions In a place purchase, freely tradeable currencies are acquired or sold at the current currency exchange rate, which is called the area price. ... Forex swap deals A foreign exchange swap purchase (swap) is a mix of an area deal and also a forward purchase.</p><p>FX Spot</p><p>&nbsp;</p><p>This is the simultaneous buying of one currency and selling of another at an agreed rate and principal amount. Settlement generally takes place two business days after the trade date (spot), when a physical transfer of the principal amount takes place between the trading parties.</p><p>Forward Swaps</p><p>&nbsp;</p><p>Unlike a spot transaction where the value of one currency is traded against another, the forward swap market is essentially an interest rate market traded in forward swap points which represent the interest rate differential between two currencies from one value date to another and also indicate the difference between the spot rate and the forward rate. A swap trade consists of two legs: a spot transaction and a forward transaction which are executed simultaneously for the same amount. The swap points indicate the difference between the spot and forward rates. Physical transfer of principal takes place on the settlement dates.</p>