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Key Financial Market Concepts, 2nd Edition by Bob Steiner

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Forward-forward Exchange Rate

Definition

A forward-forward exchange rate is the price for a forward swap transaction from one forward date to another forward date.

How is it used?

A forward-forward swap is a swap deal between two forward dates rather than from spot to a forward date – for example, to sell US dollars 1 month forward and buy them back in 3 months’ time. In this case, the swap is for the 2-month period between the 1-month date and the 3-month date. A company might undertake such a swap because it has previously bought dollars forward but wishes now to defer the transaction by a further two months, as it will not need the dollars as soon as it thought.

From the bank’s point of view, a forward-forward swap can be constructed from ...

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