HELP-Int Rate& CCy forwarsd/swap/pricing & trading

11/12/2006

Chaps!
my latest thread as part of my "re-education"-(special mention to Andy Can on the technicals front :-D )
I have always found Interest Rate & Currency forwards & Swaps-pricing & trading of a bit of a mystery. Tho grounded in spot fx & fundamentals..

Can anyone point me in the right direction of decent accessible books(seem 2 be a few on Amazon)/articles websites that simply explain their rationale & purpose-I've half got my head around them but frustrating ly not completely.

Also a decent website that has swap & fwd prices (if one exists?)

(Am going to post this in the derivatives/fx etc forum also & get shouted at!)

Thanks chaps

Nick.

I'm not sure what you want to know but the main principal is that the forward currency price is determined by the Spot FX plus the interest rates available in the two currencies. In simplified terms the theoretical opportunity for arbitrage is to borrow in currency 1 paying interest, do an fx at spot to get currency 2, invest the money to earn interest in currency 2, arrange a forward fx so that at the end you can take currency 2 plus interst and pay back currency1 + interest and have a bit left over risk free. That relationship is what ties forward FX rates to spot and the 2 currency's yield curves.

How a retail trader (if that is what you are) gets into that and manages to profit I'm not sure. Presumably using the currency and IR futures markets - but make sure you have your interest rate calcs. spot on (excuse the weak pun). Apologies if you knew this level of info already.

Best regards

Gareth

Mastering Financial Calculations: A Step-by-step Guide to the Mathematics of Financial Markets


http://www.amazon.co.uk/Mastering-F...f=pd_ka_1/026-6277797-9197258?ie=UTF8&s=books

99% of all you need to know.