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Foreign exchange swaps and cross-currency swaps

In: Research Handbook of Financial Markets

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  • Angelo Ranaldo

Abstract

The foreign exchange (FX) swap market is the largest financial market in the world and yet we do not know it thoroughly. To understand it better, we first explain the main characteristics of FX swap and cross-currency swap contracts. We emphasize the importance of the valuation adjustment (XVA) approach and then map the FX swap market in terms of currencies, parties, maturities, and size. Second, we discuss the institutional framework of the FX swap market, specifically its global over-the-counter (OTC) and two-tier structure in which dealers play a dominant role and deal with a highly diverse client base. Third, we review the recent technological trends including electronification, and policy actions such as the regulatory reform and process to oust the Libor rate. We conclude this paper by pointing to future research directions to better understand the pricing and market functioning of FX swaps.

Suggested Citation

  • Angelo Ranaldo, 2023. "Foreign exchange swaps and cross-currency swaps," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 20, pages 451-469, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20173_20
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    Cited by:

    1. Mathias Drehmann & Vladyslav Sushko, 2022. "The global foreign exchange market in a higher-volatility environment," BIS Quarterly Review, Bank for International Settlements, December.
    2. Syrstad, Olav & Viswanath-Natraj, Ganesh, 2022. "Price-setting in the foreign exchange swap market: Evidence from order flow," Journal of Financial Economics, Elsevier, vol. 146(1), pages 119-142.

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    Keywords

    Economics and Finance;

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