FX swap, forward
Bank of Mongolia (BOM) enters into MNT, USD swap, forward agreement with banks in order to support the short-term liquidity of banks and to regulate the rights, obligations and other relations of the parties arising due to short-term supply.
- "MNT swap agreement" is when the agreement is executed BOM will received MNT, provide USD and BOM will receive USD at the end of the agreement, provide MNT.
- "USD swap agreement" is when the agreement is executed BOM will received USD, provide MNT and BOM will receive MNT at the end of the agreement, provide USD.
- "MNT forward agreement" is a contract when BOM buys MNT with forward rate and sells USD after a certain period of time,
- "USD forward agreement" is a contract when BOM buys USD with a forward rate and sells MNT after a certain period of time
The BOM supports to deliver information to forex market participants openly with the purpose of avoiding sudden fluctuations in the MNT exchange rate.
Forward rate calculation
| Indicators | Conditions |
|---|---|
| First leg | First leg Swap agreement: the funds shall be multiplied with BOM’s
official daily foreign exchange rate and the exchange the funds. Forward agreement: - |
| Second leg | Second leg Swap, forward agreement: The funds that has been exchanged through the first transaction will be exchanged with forward rate. |
Forward rate shall be calculated as follows.
$F_{bid}(MNT swap, USD forward)=S_{rate}*\frac{1+I_{mnt\_bid}*t/365}{1+I_{usd\_ask}*t/360}$
$F_{ask}(USD swap, MNT forward)=S_{rate}*\frac{1+I_{mnt\_ask}*t/365}{1+I_{usd\_bid}*t/360}$
| Indicators | Description | |
|---|---|---|
| $I_x$ | Interest rate for fund (divided by 100) | |
| $I_{mnt\_bid}$ | Through first transaction of swap agreement will buy MNT funds, sell MNT funds rate with forward agreement | Overnight deposit rate of BOM |
| $I_{mnt\_ask}$ | Through first transaction of swap agreement will sell MNT funds, buy MNT funds rate with forward agreement | Overnight repo finance rate of BOM |
| $I_{usd\_bid}$ | Through first transaction of swap agreement buy USD funds, sell USD funds rate with forward agreement | SOFR rate |
| $I_{usd\_ask}$ | Through first transaction of swap agreement sell USD funds, buy USD funds rate with forward agreement | SOFR + Z spread |
| $t$ | Agreement tenor in days | |
| $F_{bid}$ | Forward rate for buying foreign exchange (MNT swap, USD forward) | |
| $F_{ask}$ | Forward rate for selling foreign exchange through BOM’s forward transactions (USD swap, MNT forward) | |
| $S_{rate}$ | BOM official daily foreign exchange rate | |