Various FX Instruments and Strategies

Foreign exchange products traded in the market constitute of the traditional products and recently introduced products.

Spot:
A spot deal involves a direct exchange of one currency for another. The spot rate generally is the current market price, the benchmark price. A swap involves cash and not contracts, and also has the shortest time frame.

Outright Forwards:
An outright forward transaction, like a spot transaction, is also a straightforward single purchase of one currency for another. The only difference is that spot is settled, or delivered, on a value date no later than 2 business days after the deal date, while outright forward is settled on any pre-agreed date, three or more business days after the deal date.

Forex Swaps:
In the FX swap market, one currency is swapped for another for a period of time, and then swapped back, creating an exchange and re-exchange. A FX swap has two separate legs settling on two different value dates, even though it is arranged as a single transaction and is recorded in the turnover statistics as a single transaction. These are not contracts and are not traded through an exchange.

Currency Swaps:
A currency swap is structurally different from the FX swap. In a typical currency swap, counterparties will exchange equal initial principal amounts of two currencies at the spot exchange rate, exchange a stream of fixed or floating interest rate payments in their swapped currencies for the period of the swap,and then re-exchange the principal amount at maturity at the initial spot exchange rate. These are not contracts and are not traded through an exchange.

OTC FX Currency Options:
A FX or currency option contract gives the buyer the right, but not the obligation, to buy (or sell) a specified amount of one currency for another at a specified price on a specified date.

Exchange Traded Futures:
A FX futures contract is an agreement between two parties to buy or sell a particular currency at a particular price on a particular future date, as specified in a standardized contract common to all participants in that currency futures exchange. This instrument is a characteristic of the US exchanges. The average contract length is roughly 3 months. Exchange Traded Currency Options:
Exchange-traded currency options, like exchange-traded futures, utilize standardized contracts-with respect to the amount of the underlying currency, the exercise price, and the expiration date.

Short dated forex options:
These are a type of OTC Forex currency options with maturity up to 90 days.

Source Exotic options:
Types of options which have specific features, such as special expiry conditions. Forex Bonds:
These are bonds issued by a financial institution against a particular foreign currency. It is mainly used in Inter-bank market.

Forward Contract:
Forward Contract is a contract with customer/another Bank for an exchange transaction to be put through at some future date at an agreed exchange rate (import and export of goods).

Hedging:
Hedging involves offsetting the price risk in cash market positions, by taking an equal, yet an opposite position in futures market. In long hedge, buying futures contracts helps shield against possible increasing prices of commodities. On the other hand, short hedge shields against declining prices of commodities.