Inside the Currency Market: Mechanics, Valuation, and Strategies

Types of Repo Transactions and Spot-Currency Trades

Many types of repo transactions exist around the world that all have huge implications for the spot-currency trade. For example, Europe and Great Britain traditionally traded a floating-rate repo where the repo rate and maturity of the repo were left open. A rise in these transactions usually signals an interest-rate change, usually an anticipation of a rate hike. This was an easy trade for spot-currency traders as a rise in floating-rate repos was the first sign that central-bank borrowing costs were too low and a rate hike was imminent. Once the hike was announced, traders settled their repo and currency transactions with a profit. Currency traders could act accordingly based on floating-rate ...