FX Swap/Rollover
Summary
An FX Swap/Rollover is a strategy that allows the client to roll forward the exchange of currencies at the maturity (settlement) of a Forward contract.
What is an FX swap/rollover?
An FX swap/rollover is a strategy that allows the client to roll forward the exchange of currencies at the maturity (settlement) of a forward contract. The client pays the existing counter party the marked-to-market price of their current position and enters into a new forward.
Objective
To allow the maturity date of a forward contract to be moved.
How does it work?
A U.S.-based client intends to sell an asset in Europe in a year’s time and exchange the euro proceeds for dollars. The client enters into a forward contract to sell euros and buy dollars at a set exchange rate in 12 months’ time. At the maturity date, the client has not sold the asset and executes an FX swap to change the expiration date of the forward. The client exits the original forward contract and simultaneously enters into a new contract based on the same underlying asset with an extended maturity and set at the current market price.
Advantages
The client benefits from increased flexibility should business circumstances change.
Disadvantages
Any gain or loss on the original contract must be settled, which may create a funding requirement.
Chatham publishes semi-bond and monthly money swap rates, as well as U.S. treasury rates, LIBOR, SOFR, and other rates.
Want to learn more?
Contact our team to discuss how Chatham can help with your treasury and risk management needs.
Contact usDisclaimers
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA). For further information, please visit cf.com/legal-notices.
Transactions in over-the-counter derivatives have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you fully understand the terms and risks of the transaction, including the potential risk of loss. Chatham only provides services to Qualified Eligible Persons (QEP) under CFTC Regulation 4.7. All rights reserved.