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Pricing a Cross-Currency Swap Without Final Notional Exchange

Article Quant Q&A · Author: ababoua
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Summary

The document compares a standard fixed-for-fixed cross-currency swap with front and back notional exchanges against a version that exchanges notionals only at the start. Its central pricing observation is that the standard swap minus the version without the final exchange is equivalent to a currency forward struck at the current spot rate. The difference between the two swap prices therefore depends on how the forward exchange rate compares with spot.

This is a concise pricing relationship rather than a full valuation walkthrough. It does not provide a numerical example, spell out the cash-flow derivation, or discuss conventions such as discount curves, collateral, or settlement details. The stated equivalence gives a useful way to isolate the value associated with the final notional exchange, with the sign determined by the forward-versus-spot comparison under the relevant currency and position conventions.

Key ideas

  • A standard cross-currency swap includes both initial and final notional exchanges.
  • Removing the final notional exchange changes value by an amount equivalent to a currency forward struck at spot.
  • The price difference’s sign depends on whether the forward FX rate is above or below spot.
  • The document states the relationship but does not detail valuation conventions or a cash-flow derivation.

Tags

Fixed incomeForexDerivatives pricing
Full text
# Xccy without back notional exchange


# Xccy without back notional exchange












Let’a Say i’m Trading a 1bln € EUR-USD fixed-fixed cross currency starting in 3M. My USD notional is fixed at today’s spot. Two cases: - back and front notional exchange. -Only front notional exchange.

How do their prices compare?

Thanks,

## Answer by Antoine Conze (score 1)

https://quant.stackexchange.com/a/42005

A standard XCCY minus an “XCCY without back notional exchange” is a currency forward struck at today’s spot. The difference will be positive or negative depending on how the forward FX compares to the spot.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.