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 counterparty the marked-to-market price of their current position and enters into a new Forward.
To allow the maturity date of a forward contract to be moved.
How does it work?
A US-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.
- The Client benefits from increased flexibility should business circumstances change
- Any gain or loss on the original contract must be settled, which may create a funding requirement