Are FX forwards uncollateralized ? At my previous IB, we modeled it as uncool, although I never understood why it would be treated differently as compared to a swap which is usually (corporates are an exception) collateralized.

As far as I am aware, FX fwds are derivatives, which means they are treated the way all your other derivs are treated (i.e. the same CSA applies).

Martinghoul, I think they are exempted being called derivatives...http://www.bakerbotts.com/file_upload/U ... ards2.htmI used to think they are treated like other derivatives as well. But apparently not....anyone in the know care to elaborate?

I work in a bank which has CSAs with all the major IBs and in CSA definitely accounts for the MTM of fwds/fx swaps. So no they're not different from IRS, fx opt, etc.

QuoteOriginally posted by: surya2centsAt my previous IB, we modeled it as uncool.What did that mean ? That you treated the two cashflows as a cash deposit (loan), discounting them on corresponding money market curves ?

QuoteOriginally posted by: pcaspersQuoteOriginally posted by: surya2centsAt my previous IB, we modeled it as uncool.What did that mean ? That you treated the two cashflows as a cash deposit (loan), discounting them on corresponding money market curves ?I meant "modeled it as uncoll". Sorry for the typo. Typically we would use the FX forwards to build the short end of the discount curve. For example short dated USDMXN fx fwds would be used to build the short end of the MXN discount curve. So, yes, the implied money market rate would come from the FX forward assuming we have built the USD discount curve by other means.

QuoteOriginally posted by: surya2centsMartinghoul, I think they are exempted being called derivatives...http://www.bakerbotts.com/file_upload/U ... ards2.htmI used to think they are treated like other derivatives as well. But apparently not....anyone in the know care to elaborate? Well, I can tell you for a fact that my treasury definitely treats FX fwds as regular derivatives.