Questions and answers

What is a quanto adjustment?

What is a quanto adjustment?

A quantity-adjusting option, also known as a Quanto option, is a cash-settled, cross-currency derivative, where the underlying asset is denominated in a currency other than the currency in which the option is settled. Quanto options come in both call and put varieties.

What is a quanto structure?

A quanto is a type of derivative in which the underlying is denominated in one currency, but the instrument itself is settled in another currency at some rate. Another type of structure is called Quanto in the weather/energy markets. In these markets, a Quanto is a weather-contingent energy (or commodity) derivative.

What is a quanto equity swap?

A quanto equity swap is a security-based swap if (i) the purpose of the transaction is to transfer exposure to the return of a security or security index without transferring exposure to any currency or exchange rate risk and (ii) any exchange rate or currency risk exposure incurred by the dealer is incidental to the …

How does a cross currency interest rate swap work?

A cross-currency swap can involve both parties paying a fixed rate, both parties paying a floating rate, one party paying a floating rate while the other pays a fixed rate. The interest payments are usually settled in cash, and not netted out, since each payment will be in a different currency.

What is Quanto CD?

A credit default swap (CDS) in which the swap premium payments, and/or the cashflows in the case of default, are not in the same currency, i.e., in a different currency to that of the reference asset.

What is the difference between FX swap and cross currency swap?

FX Swaps and Cross Currency Swaps Technically, a cross-currency swap is the same as an FX swap, except the two parties also exchange interest payments on the loans during the life of the swap, as well as the principal amounts at the beginning and end. FX swaps can also involve interest payments, but not all do.

What is a compo option?

An exotic option whose underlying is a foreign asset (like a foreign equity) denominated in either domestic or foreign currencies and struck in either the domestic or foreign currency. The compo option generally belongs to the class of currency-protected options. It is also known as a composite option.

What is a swap investopedia?

A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments. Rather, swaps are over-the-counter (OTC) contracts primarily between businesses or financial institutions that are customized to the needs of both parties.

What is swap valuation?

A valuation of a swap contract is a process of determining a fair value of a swap, in other words, the present value of its expected cash flows. The valuation process is common to all types of swaps, but the market variables affecting their prices differ based on the underlying items.

How do you calculate P&L on an FX swap?

The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and the number of pips the price has moved. The actual profit or loss will be equal to the position size multiplied by the pip movement.

Which is the best description of a Quanto?

Quanto. A quanto is a type of derivative in which the underlying is denominated in one currency , but the instrument itself is settled in another currency at some rate. Such products are attractive for speculators and investors who wish to have exposure to a foreign asset, but without the corresponding exchange rate risk.

What does Quanto mean in credit default swap?

Quanto credit default swap, in which default protection is purchased on a notional amount specified in one currency, but the regular protection payment is denominated in a different currency.

What do you mean by Pricing quanto derivatives?

Pricing quanto derivatives involves modeling financial variables (stocks, interest rates etc.) in a currency which is different from their actual currency.

What does a certificate of deposit ( CD ) Mean?

Certificate Of Deposit – CD. By Investopedia Staff. A certificate of deposit (CD) is a savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements.