Positive and Negative Basis in the currency swap

CFA Level III Derivatives
#1

I saw there are plenty of questions about the basis swap on the currency swap.

My question is related to this. So I get it that the basis is usually applied on the non-USD leg based on what the curriculum is saying
So if the basis is negative, what it means is that the non-USD leg is receiving whatever floating rate minus the basis given in the swap
And what does it mean when the basis is positive? Does it mean that the non-USD leg is receiving more aka floating rate + basis?

#2

Non-USD leg is receiving = floating rate + basis.

If floating rate for non-USD currency is 1.95%
And, basis is - 0.15% (that is a negative sign and not a dash sign)

Non USD leg is receiving = floating rate + basis = 1.95% + (-0.15%) = 1.8%

Had basis be a positive number i.e. 0.15%:
Non USD leg would be receiving = floating rate + basis = 1.95% + 0.15% = 2.10%

Hope it helps.

1 Like
#3

thank you!
it really does :slight_smile: