Abstract
The foreign exchange (FX) swap market is the largest financial market in the world and yet we do not know it thoroughly. To understand it better, we first explain the main characteristics of FX swap and cross-currency swap contracts. We emphasize the importance of the valuation adjustment (XVA) approach and then map the FX swap market in terms of currencies, parties, maturities, and size. Second, we discuss the institutional framework of the FX swap market, specifically its global over-the-counter (OTC) and two-tier structure in which dealers play a dominant role and deal with a highly diverse client base. Third, we review the recent technological trends including electronification, and policy actions such as the regulatory reform and process to oust the Libor rate. We conclude this paper by pointing to future research directions to better understand the pricing and market functioning of FX swaps.
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