A swap transaction in the foreign exchange market is combination of a spotand a forward in the opposite direction. Thus a bank will buy DEM spotagainst USD and simultaneously enter into a forward transaction with thesame counter party to sell DEM against USD against the mark coupled witha 60- day forward sale of USD against the mark. As the term ‘swap’ implies,it is a temporary exchange of one currency for another with an obligation toreverse it at a specific future date.
The bid rate denotes the number of units of a currency a bank is willing to pay when it buys another currency.
Offer Rate :
The offer rate denotes the number of units of a currency a bank will want to be paid when it sells a currency.
Bid - Offer Rate:
The bid offer Rate is the rate which states both, the price which is the bank iswilling to pay to buy other currencies and the price the bank expects when itsells the same currency. Bid and Ask will always be from a bank’s point of view. Thus (A/B)bid will denote the number of units of A the bank will paywhen it buys one unit of B and (A/B)ask will mean the number of units of Athe bank will want to be paid in order to sell one unit of B.
The quotes are given as number of units of a currency per USD. ThusDEM1.5675/USD is a European quote.