Spot Foreign Exchange
A Spot FX contract involves the purchase of one currency against the sale of another at an agreed price for delivery on two working days from the trade date.
Forward Foreign Exchange
A Forward FX contract involves the purchase of one currency against the sale of another at an agreed price on a future date.
Foreign Exchange Swaps
A simultaneous purchase and sale of a currency pair with two different value dates.
Non-Deliverable Forwards (“NDF”)
NDF is an outright forward contract in which counterparties settle the difference between the contracted price and the prevailing spot price on an agreed notional amount. It is mostly used as a hedge against future exchange rate movements for non-convertible currencies.
FX Options
An FX option gives the buyer the right, but not the obligation, to buy or sell a specific quantity of a foreign currency in exchange for another at a fixed price.
Currency Swaps
Forward Rate Agreements (“FRA”)
FRA is a forward contract to hedge future interest rate exposure. It is used mainly by companies or investors to lock in an interest rate today, for the money the company or investor intends to lend or borrow in the future.
Interest Rate Swaps
An interest rate swap is an agreement between two parties to exchange one stream of interest payments for another over a period of time, commonly 2 to 10 years.
Interest Rate Options
An interest rate option provides the holder with the right, but not the obligation, to enter an interest rate contract before the expiration.