Can anybody tell me which implications the new "multiple curve world" has for FX forwards and FX options?Is it as simple as choosing the right discount curve (e.g. OIS curve or funding curve), i.e. just a question of how to discount correctly?Or is it more complicated...Thanks in advance.

Good question and one close to my heart at present for a number of reasons. I think it comes down to whether you exchange collateral on FX Forwards or not. My understanding at present is that you do for forwards > 1year in duration. FX Options I am assuming you exchange collateral as part of the CSA.Interested in anyone elses views.

In general yes FX fwd trades do come under CSA agreements.The question is whether changing the CSA changes the breakeven level for the FX fwd.This will happen if changes in FX levels are correlated with changes in the spreads between the discounting levels concerned.Right now there is no such correlation priced into people's FX fwd quotes in the market - not that I have heard of anyway. Indeed when people are constructing CSA-driven discounting curves across multiple currencies they will generally do so precisely by assuming that FX fwd rates stay constant when discounting levels change.The standard argument in favour of a correlation would be that financial crisis = widening spreads = flight to quality and appreciation of reserve currencies.But you can shoot that full of holes too. For instance as the current crisis worsens, interest rates drop to zero and fra/ois spreads shrink because there is no space left for them.So I think for now if you just pick the discount curve and assume FX fwd breakeven rates themselves are not affected then that would not be an unusual stance.