A foreign exchange (FX) or currency spot transaction is an agreement between two parties to buy an amount of one currency against the sale of another currency at an agreed rate of exchange (i.e. the price) on a settlement date that is typically two business days from the trade date (or within the customary settlement timeline of the relevant spot market for such currencies). The agreement involves exchanging one currency for a counter-currency on a specific delivery (aka settlement) date.

A foreign exchange (FX) or currency forward contract is a transaction between two parties that involves the exchange of two different currencies on a specific future date at a fixed rate agreed at the inception of the contract. The agreement involves the currency pair, the forward rate and/or the currency and counter-currency amounts due based on the forward rate and the delivery (settlement) date. The forward rate is generally calculated in consideration of the current spot rate, adjusted by forward points that relate to the time differential. By using a forward contract, market participants aim to lock in an exchange rate for a future obligation while mitigating the risk of  fluctuations in exchange rates between the time the contract is agreed and when the currencies are exchanged.

A foreign exchange (FX) swap contract is a transaction that involves (a) an exchange of two different currencies on a specific date at a fixed rate agreed upon at the inception of the contract, and (b) a reverse exchange of the two currencies described in (a) above at a later date and at a fixed rate that is agreed upon at the inception of the contract.  An FX swap transaction enables market participants to convert funds from one currency to another temporarily in order to meet obligations in a different currency. Later, the two currencies are exchanged back without incurring exchange risk during the transaction’s tenor.  At inception, the parties enter into one transaction involving two “legs” that will settle on different dates at predetermined exchange rates in the same currency pairs. Forward points may apply to one or both legs, depending upon the characteristics of the transaction leg.

A TWAP trading strategy uses an algorithm (a computer program that applies an automated process) based on a time-weighted average price. A TWAP is typically employed for the execution of larger orders in an attempt to avoid excessive market impact and to achieve price improvement for client. A TWAP order generally aims to achieve an execution price close to the time-weighted average mid-price observed in the primary market, minimizing slippage by dividing a large order into multiple smaller orders over a trading period. U.S. Bank and clients customize TWAP parameters in consideration of factors such as trading objectives, anticipated execution conditions, liquidity and costs. Fees may apply.

U.S. Bank offers a passive currency overlay (PCO) solution that gives institutional clients a highly automated, passive and scalable solution for the management of portfolio and share-class currency hedging, with look-through and index replication strategies available. This tool is designed to help investors looking to maximize asset performance and protect their overall investment from FX volatility. The service offers sophisticated reporting and attribution analytics for evaluating performance. Fees may apply. 

U.S. Bank is a direct participant in the CLS system. Since its 2002 inception, CLS has represented the global standard in FX settlement risk mitigation, now settling over USD 7 trillion of FX trades each day in 18 of the world’s most actively traded currencies. The CLS payment-versus-payment settlement model protects participants from FX settlement risk while also delivering substantial efficiencies to operational processes and liquidity management. Today, more than 30,000 market participants around the world have the capability to settle their FX trades via CLS.