Overnight hold rates for forex

Discussion in 'Forex' started by Big Game Hunter, Mar 27, 2009.

  1. Im wondering if anybody knows how the overnight swap rates for forex transactions are determined. Do individual forex firms establish their own rates or are they determined by central banks.

    I jst worked out the annual hold cost for 10 dollars a pip (100k) at MB trading and it went as follows...

    or around 320 pips per year of of overhead for the interest on holding a 10 dollar a pip position overnight for one calendar year. Immediately I realised that this could be a smoking gun for someone involved in hedge funds because the question must inevitably be asked...What if the rates were to blow out? Suddenly the whole model could be blown to pieces by a change in the overnight rates. Its clearly not reflective on the central bank rates of USD 0.25% and EUR 1.50%.

    Could somebody familiar with the industry please tell me wether these rates vary between banks and brokers? Also does anybody know of any information sources that I could use to learn more about how these rates are determined. Are there any historical sources of what these rates have been over the years for example? i assume that they are derivative of some kind of short term overnight bank rate like the LIBOR in the UK. Correct? Anyone got any news on this?
  2. Dude, it's a mkt, so you can see the rates at which various banks and brokers transact... X-ccy basis swaps is the shape through which these trade. Maybe you can google arnd to see if you can find a primer on these, because it's just too onerous to write about them.

    You're correct in some of your guesses. One of the big elements of the blowout we just had was the total mess in the x-ccy basis swap space.