A foreign exchange swap or currency swap is a contract under which two parties agree to exchange two currencies at a set rate and then to re-exchange those currencies at an agreed upon rate at a fixed date in the future. Therefore, an FX swap consists of two transactions: a spot transaction and a forward transaction.

A currency option or FX option is a contract that gives the buyer the right, but not the obligation, to buy or sell a certain currency at a specified exchange rate on or before a specified date. Currency options are one of the most common ways for corporations, individuals or financial institutions to hedge against adverse movements in exchange rates.

A currency future, also known as an FX future , is a future contract to exchange one currency for another at a specified date in the future at an exchange rate that is fixed on the purchase date. By using a currency future contract, the parties are able to effectively lock-in the exchange rate for a future transaction. Speculation and hedging in…[Read more]

A currency forward or FX forward contract is an agreement that allows the buyer to lock in an exchange rate the day on which the agreement is signed for a transaction that will be completed later. Forward contracts are one of the main methods used to hedge against exchange rate volatility, as they avoid the impact of currency fluctuation over the…[Read more]

An FX Asian option or Asian currency option is a special type of option contract where the payoff depends on the average of the underlying exchange rates over a certain period of time. The payoff is different from the case of a European option or American option, where the payoff of the option contract depends on the underlying FX rate at exercise date.

A floating coupon note is a very flexible and generic funding product. The issuer pays the buyer periodic floating coupons based on a spread-adjusted reference rate, such as LIBOR. The buyer pays an upfront fee to the issuer. Also, the buyer pays the issuer a notional amount at inception and the issuer returns it upon cancellation or maturity of the deal.

Zero coupon bonds are issued at a deep discount and repaid the face value at maturity. The greater the length of the maturity is the cheaper price a bond has. Unlike other bonds, the investor’s return is the difference between the purchase price and the face value. An investor preferring a long-term investment may purchase zero coupon bonds such a…[Read more]

A puttable bond is a bond in which the investor has the right to sell the bond back to the issuer at specified times for a specified price. At each puttable date prior to the bond maturity, the investor may get the investment money back by selling the bond back to the issuer. The underlying bonds can be fixed rate bonds or floating rate bonds. A…[Read more]

Inflation indexed bonds, also called inflation linked bonds or real return bonds, are bonds where the principal is indexed to inflation or deflation on a daily basis in terms of a reference index, such as Consumer Price Index (CPI). The CPI is the proxy for inflation that measures price changes in a basket of goods and services.