Derivatives of Foreign Exchange Markets - Instructional ：外汇衍生市场——教学.pptVIP

Derivatives of Foreign Exchange Markets Dr. J. D. Han King’s College University of Western Ontario 2. Forward FOREX  Forward FOREX market In the long-run, Forward FOREX is a kind of gamble evolving the forward rate and the current rate. It is a financial speculation by itself. However, it could offset FOREX market volatility as another business risk. In the short-run, Forward FOREX rate may deviate from the Covered Interest Parity and provide short-term arbitrage opportunities (side function). 1. How does Forward FX Transaction work? Organization: Buy a currency at an agreed rate on the trade date which is now , and deliver/pay later at the settlement date. The intervals or Value dates are 1, 2, 3, 6, or 12 months Mostly, over-the-counter (O. T. C.) transactions 2) Who wins and loses in Forward FOREX market in the long-run? The Buyer of a Forward currency is in the long-position; and the seller is in the short-position. When the actual current rate goes up, the buyer on the long-position wins. On the settlement date, compare the current market rate and the agreed rate. By the excess of the former to the latter, payment goes from the buyer’s account to the seller’s. vice versa. Once again, how does the Forward Market game play? A and B sells and buys a currency, agreeing on the Forward FOREX rate or F for the settlement date. When the settlement date comes, compare the forward rate F and the current FOREX rate E1 on that day. If E1 F, the buyer (on long position) wins and get the difference E1 – F from the seller (on short position) * Derivative Definition of Derivatives whose values depend on underlying financial assets Principle Hedging behaviors beget a series of derivatives Different Kinds of Derivatives - Short-selling in Stock Market Forward-related Derivatives: Forwards, Futures, Swaps - Options-related Derivatives 3. There will be 3 kinds of people to participate in the Forward FOREX market If you are so sure