Valuing Cross Currency Swaps: Equivalence of Bond & Fx Forward Methods
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1. Context
In this swatch, we take an example of valuing a Cross Currency Swap, and perform this valuation via two approaches: the Bond Method, where we represent the swap as a portfolio of two bonds – a long (respectively short for the other party in the swap) position in a fixed rate bond that pays in first currency and a short (respectively long for the other party in the swap) position in another fixed rate bond that pays in the second currency. We make ourselves familiar with the steps in each approach and the subtleties involved in both. The details of the reading in which this topic appears are given below:
| Area | Financial Markets and Products |
| Reading | Swaps |
| Reference | John C. Hull, Chapter 7. Swaps In Options, Futures, and Other Derivatives, 10th Edition, (New York: Pearson, 2017). |