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Receiving Fixed in Forward-Starting Swaps and Outright Forwards

Article Quant Q&A · Author: Always_Student
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Summary

The document explains that receiving outright in a forward-starting interest rate swap means receiving the fixed rate and paying the floating rate over the swap’s term. In the stated example, the swap begins in six months and runs for two years. The term “outright” is described as unnecessary in that phrase, though it may distinguish a standalone swap position from a relative trade that pairs it with another swap.

The answers also describe outright forwards in foreign exchange as contracts that lock in an exchange rate for a specified future delivery date. A company with a later foreign-currency payment may use such a contract to reduce uncertainty about the eventual exchange rate. These are related uses of “outright” in different markets; the document does not develop swap valuation, forward pricing, or the mechanics of isolating forward points.

Key ideas

  • Receiving fixed in a swap means receiving the fixed rate and paying the floating rate.
  • A forward-starting swap begins at a future date and runs for its stated tenor.
  • “Outright” can distinguish a standalone swap position from a relative swap trade.
  • An FX outright forward locks in an exchange rate for a future delivery date.
  • Companies can use FX forwards to reduce uncertainty about future foreign-currency payments.

Tags

Fixed incomeDerivatives pricingForex
Full text
# What does it mean to 'receive outright'?


# What does it mean to 'receive outright'?












What does the following statement mean: "after accounting for levels of market volatility, we favor receiving outright in 6-month forward-starting 2-year swaps."? Specifically, what does "receiving outright" mean? Is there a way for you to receive only the forward points? Thanks in advance!

## Answer by dm63 (score 1, accepted)

https://quant.stackexchange.com/a/25321

Receiving outright simply means receiving the fixed rate versus LIBOR on the 6 month forward starting 2 year swap. The term 'outright' is unnecessary here - it is probably being used to compare with a potential strategy of receiving the fixed on a 6 month forward starting 2yr swap versus paying fixed on a spot starting 2yr swap.

## Answer by Vinayak Mahesh (score 0)

https://quant.stackexchange.com/a/25346

I've heard this phrase thrown around in the Forex market. There is a locked-in exchange rate and delivery date in these cases.

In terms of companies, large purchases are made from foreign business that utilize outright forward contracts to cover costs. For instance, when a US company buys materials from a Mexican supplier they could be required to make a payment for half of the total value of the payment and the other half in about six months. In order to minimize currency risk exposure, a spot trade is used to cover the first payment. An outright forward is then used to lock in the exchange rate and the agreed-upon rate can be used in six months.

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.