Currency Forwards

any currency vs usd forward rate agreement? That's what I assumed anyway.

Sorry for the terminology confusion. I used the term "FRA" (inaccurately?) in reference to the forward rate that is specified in a contract to exchange a currency in the future.


Yes, this is what I am referring to. When X currency/USD FRAs decline, does it always imply spot weakness?

I want to understand the mechanism at work here.

Well if you consider that the forward is just a discounted spot then the same fundamental strengths and weaknesses will be in play at any point on the curve so to speak. The spread or difference will stem from the discount factor and the opportunity costs components therein. You're basically looking at a reflection of interest rate curve through fx I think. I'm sure Martinghoul will be along to set me straight here.

There's no such thing... There are FRAs that trade in each ccy, but they trade independently.

When you trade FX fwds (aka FX swaps), you will be trading a forward exchange rate. That rate is driven by the interest rate parity relationship. That is what the OP is referring to and that's not really related to FRAs. Sometimes people use the term "forward points" or just "forwards".

So, in answer to the original question, the fwd can decline not just because of the spot moving, but also because the pricing of the expected relative interest rates in the market has changed. For instance, you could see this occurring recently in EURDKK.

Swat I (we?) meant. Terminology failed me there lol.

could you trade the differentials ?

a bit like the differentials / spreads on 3 year vs say 10 year bonds ?

N

What you mean bet on the curve tighenting/flattening in one country vs another? That's just two trades innit?

yep - that as well..............

I've been considering the (intra) European bond market as it looks sometimes a lot easier than forex at times going spain/italy / Portugal etc etc vs the germanbund

but I know Feck all about it so I stay away ...probably best

N