I am trying to price fx-swaps based on the arbitrage relationships via the interest rate markets. As long as we're talking cash instrument (deposits) it is straightforward but when the basis swaps comes into play it gets more problematic. Here are some questions that I hope some of you seasoned traders can assist me with.
1. Given that first basis-swap on screen is the 1 yr, is it common to factor in the basis swap spread when pricing an fx-swap below 1 yr?
2. Right now I am just calculating the fx swap from midprices on the deposits. If I use the basis swap, how appropriate is it to factor in the spread to this midprice given that the basis swap is an exchange of two flows based on the offer-rates?
I guess my general question is how, in practice, does a fx-swap trader handle the basis swap curve?
Thanks a lot for any ideas about this.
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