Foreign exchange (FX) derivatives
Foreign exchange (FX) derivatives

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Foreign exchange (FX) derivatives
  • What is a FX derivative?
  • Common FX derivatives and their uses
  • FX forwards
  • FX swaps
  • FX options
  • Deliverable and non-deliverable FX derivatives
  • Exchange traded FX derivative contracts
  • Documentation of foreign exchange contracts
  • FX transactions in a period of market disruption
  • More...

BREXIT: As of 31 January 2020, the UK is no longer an EU Member State, but has entered an implementation period during which it continues to be treated by the EU as a Member State for many purposes. As a third country, the UK can no longer participate in the EU’s political institutions, agencies, offices, bodies and governance structures (except to the limited extent agreed), but the UK must continue to adhere to its obligations under EU law (including EU treaties, legislation, principles and international agreements) and submit to the continuing jurisdiction of the Court of Justice of the European Union in accordance with the transitional arrangements in Part 4 of the Withdrawal Agreement. For further reading, see: Brexit—introduction to the Withdrawal Agreement. This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Key issues for derivatives transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

What is a FX derivative?

A foreign exchange (FX) derivative is a type of derivative whose payoff depends on the FX rates of two or more currencies. The market for FX is measured in trillions of dollars, and includes a substantial amount of FX derivative contracts. 80% of all FX trades involve the US Dollar, which is considered to be the world's premier reserve currency.

The majority of FX trades take place

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