foreign exchange

Hi John,

for the forex swap, generally the step is

1. swap domestic currency today with the foreign currency to cover the initial investment at an agreed swap rate
2. take out a loan in domestic currency to buy the foreign currency
3. in one year’s time ( assuming), arrange to swap back the foreign currency obtained in (1) for pounds at the same swap rate
4. just like taking out a loan in foreign currency we are therefore only exposed on the profit we make.

My questions is that
when we look at the step 2, when they take out a loan in domestic currency to buy the foreign currency, do we normally use spot rate or the forex swap rate(forex swap rate is offered by bank) ?

i’m not sure which one to use but i’m standing on spot rate. The reason is because taking out a loan in domestic currency to buy the foreign currency isn’t part of the swapping and swapping rate is only used for swapping the currency not for buying the loan.

thanks john, this forex swap is quite confusing even after i watched a video in website.