In matched swaps, the pricing is based on which of the following?

In matched swaps, the pricing is based on the mid-market spot exchange rate. This approach reflects the current market consensus on the value of exchanging currencies or interest rates, taking into consideration the rates at which the two currencies can be swapped without any markup or additional costs. The mid-market spot exchange rate provides a neutral benchmark that helps ensure both parties in the swap can enter the transaction fairly, as it represents the average of the bid and ask prices available in the currency market.

Using mid-market rates is significant because it captures the true market value at a specific point in time, eliminating biases that can result from using past data or other less relevant measures. This method enables accurate pricing for the swap, facilitating effective hedging and risk management strategies for participants.

Other methods, like historical average rates, future projected rates, or lowest available market price, do not represent the current market conditions accurately and could lead to pricing discrepancies between counterparties. Hence, they are not suitable for pricing matched swaps, reinforcing why mid-market spot exchange rates are the preferred choice.