HfB - Business School of Finance & Management
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Cross currency swaps are powerful instruments to transfer assets or liabilities from one currency into another. The market charges for this a liquidity premium, the cross currency basis spread, which should be taken into account by the valuation methodology. We de- scribe and compare two valuation methods for cross currency swaps which are based upon using two di\ufb00erent discounting curves. The \ufb01rst method is very popular in practice but inconsistent with single currency swap valuation methods. The second method is consistent for all swap valuations but leads to mark-to-market values for single currency o\ufb00 market swaps, which can be quite di\ufb00erent to standard valuation results.