FX Deals
Foreign exchange (FX) deals involve the buying or selling of one currency against another. Banks conduct FX transactions for customers (corporate and retail) and on a proprietary basis for liquidity management and trading.
💱 Key Characteristics
- Spot settlement is commonly T+2, but conventions vary by currency pair and market holiday calendar; same-day and next-day settlement may also be agreed.
- Forward FX contracts lock in an exchange rate for a future settlement date.
- FX swaps combine a spot deal and an offsetting forward deal to manage liquidity across currencies.
- Trades are conducted Over-The-Counter (OTC) between counterparties, not exchange-traded.
- Counterparty credit risk is managed through approved limits and, where relevant, master agreements and collateral arrangements.
- Regulatory and statistical reports are submitted when the institution and transaction fall within scope.
🧾 Deal Types
| Deal Type | Description | Typical Use |
|---|---|---|
| FX Spot | Buy/sell currency for settlement in 2 business days | Customer FX conversion, trade settlement |
| FX Forward Outright | Agreed rate for future delivery date | Hedging customer export/import receivables |
| FX Swap | Simultaneous spot buy + forward sell (or vice versa) | Liquidity management, rolling forward positions |
| FX Option | Right (not obligation) to buy/sell at agreed rate | Hedging with downside protection |
| Non-Deliverable Forward (NDF) | Cash-settled forward on restricted currencies | Hedging exposure to CNY, INR, etc. |
🛠️ Operational Workflow
- Dealer agrees rate with counterparty or customer (phone/Bloomberg/electronic platform)
- Trade captured in treasury management system (TMS) — deal ticket generated
- Confirmation sent using the agreed electronic or documented confirmation channel
- Counterparty confirmation matched and discrepancies investigated
- Nostro account instructions sent for settlement (SWIFT MT202 for bank-to-bank, MT103 for customer)
- Settlement on value date — payment legs exchanged via correspondent banks
- Nostro reconciliation performed end of day
- Open positions revalued using the institution's approved independent market-data sources
🧮 Example Calculation
Scenario: Bank buys USD 1,000,000 against SGD spot at 1.3450.
| Leg | Currency | Amount |
|---|---|---|
| Buy (receive) | USD | 1,000,000.00 |
| Sell (pay) | SGD | 1,345,000.00 |
| Value Date | T+2 | 26 May 2026 |
Forward premium calculation (3-month forward, USD/SGD):
Forward Points = Spot × (SGD rate − USD rate) × Days / 360 = 1.3450 × (3.20% − 5.35%) × 90 / 360 = approximately −0.0072 under this simplified convention
3-Month Forward Rate = 1.3450 − 0.0072 = 1.3378
📋 Compliance & Monitoring
- Master agreements and collateral documentation completed where required for the product and counterparty
- Counterparty credit exposure monitored against approved credit limits (pre-settlement and settlement risk)
- FX position limits (intraday and overnight) enforced by risk management
- Daily P&L and mark-to-market revaluation reported to treasury management
- Applicable MAS statistical and transaction reports submitted within their prescribed scope and timetable
- OTC derivatives reported where required under the Securities and Futures reporting framework
- Transaction approvals follow documented dealer mandates and escalation thresholds