Identifier: C3T7L1 · Revision: 2026-10-26 · Classification: restricted

Decision and objectives

Distinguish FX swaps, cross-currency swaps and account financing charges. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can distinguish FX swaps, cross-currency swaps and account financing charges; map principal exchanges and coupon legs separately; calculate a supplied financing cost without mistaking it for swap value.

Prerequisite: C3T6L4; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

An FX swap combines an exchange of two currencies on a near date with an opposite exchange on a far date, normally agreed together. A cross-currency swap exchanges interest legs in different currencies and may exchange principal initially and finally under its terms. A single-currency interest rate swap instead exchanges rate-based payments in one currency. An overnight financing line on a leveraged account is a charge or credit under that account, not proof of a bilateral FX-swap transaction.

Domestic investor access to a tailored swap is conditional on provider permission, credit, documentation and customer eligibility; an international definition supplies no local right to trade.

Price and return drivers

For a simple fixed-principal cash financing line, cost = principal × annual rate × days/basis. FX swap points encode both currency financing conditions and basis; they cannot be called pure interest in one currency without both principal legs. Cross-currency coupon value requires separate curves and currency conversion, not merely the difference between nominal rates.

Worked case

Hypothetical firm gives TRY 4,000,000 and receives USD 100,000 on the near date. Thirty days later it returns USD 100,000 and receives TRY 4,120,000. Net TRY receipt over the two exchanges is TRY 120,000, but the firm has also supplied use of dollars on the far date and tied up lira; this is not free TRY 120,000 income. The simple lira-only annualized comparison is 120,000/4,000,000 × 360/30 = 36%, conditional on ignoring dollar carry. Service fee TRY 2,000 reduces the lira difference to TRY 118,000 before dollar opportunity cost and tax.

Adverse case

A separate hypothetical account owes an overnight financing charge on TRY 500,000 at 45% actual/360 for four days: TRY 2,500. It does not exchange USD 100,000 or recreate the above swap. If the firm's dollars must instead be returned at a different amount under its actual agreement, the principal and rate comparison changes. Missing either currency leg makes the valuation incomplete.

Practical use

Obtain the near and far value dates, exact currency amounts, coupon schedule if any, collateral and termination terms from an authorized provider. Confirm settlement accounts and payment-versus-payment arrangements where available. Include both currency opportunity costs, spread, credit charge, collateral funding, transfer and termination fees. The CFTC dictionary is used for terminology only; Turkish legal access and protection need domestic evidence.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Choose the structure that changes the intended funding exposure. Do not infer swap income from the larger far lira amount alone or call every broker rollover an FX swap. Defer when the other currency's amount, value date or funding cost is missing.

Practice and references

Exercise: hypothetical near TRY 2,000,000 against EUR 50,000; far TRY 2,050,000 against the same euros after 20 days. Calculate the lira difference and lira-only annualization, then deduct a TRY 1,000 fee. Solution: 2,050,000 − 2,000,000 = TRY 50,000; lira-only simple annualization = 45% on actual/360. A TRY 1,000 fee leaves TRY 49,000 before euro opportunity cost and tax. This is a comparison measure, not the swap's full economic return.

Takeaway: Calculate a supplied financing cost without mistaking it for swap value using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: fx-swap. Formula: FX swap same-currency cash difference. Glossary: FX swap, Cross-currency swap. Next lesson: C3T7L2. Topic test.

Sources and verification date (2026-10-26):

Shared reference guide