Please explain whether on cancellation of Forward Contract on due date or before due date customer have to face the swap loss? In supplementary of SFM ( Page no. C-9 ) nothing is mentioned about swap loss & int on outlay of funds for cancellation on due date & also for before due date.So pls resolve my query at the earliest.
2 Replies
CA. Sandeep Kumawat
(CA)
(341 Points)
Replied 28 March 2017
Page C9 has two illustration
ill - 4 it is cancellation before expiry, and it is not complete cancellation, it is cancellation by taking reverse position
customer had to sell AUD @ 47.25. now after 2 months customer will buy 1 month FWD contract @ 47.52 to cancel the exposure after 1 months. (it is cancellation before expiry and not a case of no show and what you are talking will happen only when "no show" by customer of due date and therefore bank is holding position for next 30 days).
ill 5 - it is a case of cancellation on expiry, this is the simplest form of cancellation, customer will buy USD from market at spot and give to bank.
there is no open exposure to bank or customer after settling at spot market.
Swap loss and interest on additional fund blocked or released, are related to Early delivery where buyer or seller comes early for delivery or sell, than bank's open exposure need to be settled for remaining period. and on additional fund intest loss or income is passed on to customer - (from bank's point of view),
Remember in case of default by customer there will be no interest saving transfer to customer.
thanks for this thread, you made me read it again.
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