You cannot predict the future or control the present—these are prime directives
governing the creation and use of options.
This text takes the mystery out of predicting and profiting from the future price
trends of stocks and futures contracts using fundamental and/or technical analysis
along with option strategies that manage the associated risk. Savvy market operators
have devised methods of attacking the markets aggressively, while protecting
themselves from the daily risk of loss.
Chapter 7 "Foreign currency options" drug Lecture Multinational financial management introduce to you the content: Contract specifications, option positions, hedging using option contract, strategy on currencies option, option pricing.
This chapter explain how forward contracts are used to hedge based on anticipated exchange rate movements, describe how currency futures contracts are used to speculate or hedge based on anticipated exchange rate movements, explain how currency option contracts are used to speculate or hedge based on anticipated exchange rate movements.
Options involve risks and are not suitable for everyone. Prior to buying or selling options,
an investor must receive a copy of Characteristics and Risks of standardized Options.
Copies may be obtained by contacting your broker or the Options Industry Council at 440
S. LaSalle St., Chicago, IL 60605
In order to simplify the computations, commissions, fees, margin interest and taxes have
not been included in the examples used in these materials.
Financial markets have undergone tremendous growth and dramatic changes in the
past two decades, with the volume of daily trading in currency markets hitting over
a trillion US dollars and hundreds of billions of dollars in bond and stock markets.
Deregulation and globalization have led to large-scale capital flows; this has raised
new problems for finance as well as has further spurred competition among banks
and financial institutions.
368 Planning and Forecasting
case of asset exposure. With the option contract, a call option is acquired in the case of liability exposure and a put option in the case of asset exposure. Some relevant commentary, in relation to the above discussion, on the effects of hedging with currency options, is provided by the disclosures of Analog Devices Inc.
The first set of factors lower the cost of default. Default propensity is exaggerated by state
laws providing for a greater amount of homestead protection or for less-than-full recourse on
the defaulting borrowers by lenders. This is because they shield a greater proportion of the
borrower’s wealth and income from capture by the lender post-default and, (if applicable), a
This entry establishes the cost of the investment to LeBlanc, and will be the carrying
value of the investment. Changes in the value of the U.S. dollar in subsequent reporting
periods are irrelevant to the cost of an equity investment.
For debt instruments, the issue is a bit more complicated. Debt instruments, by definition,
are payable in a given amount of currency.When the debt is stated or denominated in a cur-
rency other than the investor’s reporting currency, the equivalent value of the instrument in
the reporting currency changes as the exchange rate changes.
Appendix A: Derivatives. Derivatives are financial instruments that “derive” their values from some other security or index. They serve as a form of ‘insurance” against risk. Financial futures, forward contracts, options, and interest rate swaps are the most frequently used derivatives.
68 Understanding the Numbers
part of net income. With the other method, the translation adjustment will be reported as part of other comprehensive income.38 Foreign-currency gains and losses can also result from the use of various currency contracts, such as forwards, futures, options, and swaps, entered into for both hedging and speculation. It is not uncommon to observe foreign exchange gains and losses year after year in a company’s income statement.
Measuring and Managing the Value of Companies
WILEY FINANCE Advanced Fixed-Income Valuation Tools, Narasimham Jegadeesh and Bruce Tuckman Beyond Value at Risk, Kevin Dowd Buying and Selling Volatility, Kevin B. Connolly Chaos and Order in the Capital Markets: New View of Cycles, Prices, and Market Volatility, Second Edition, Edgar E. Peters Corporate Financial Distress and Bankruptcy, Second Edition, Edward I.
Many investors are perfectly satisfied with the more traditional investing
opportunities: They build solid portfolios containing individual
stocks and bonds, mutual and exchange-traded funds, and so forth, and are
generally content to let investment counselors manage their accounts. Other
investors, however, prefer to take a more active role: Perhaps they want to
manage their accounts themselves or broaden their investment horizons
(and increase their potential returns) by delving into more volatile markets...
Under certain conditions, the Company may use options and futures on securities, indices and interest rates, as described in Section
3.2. "Sub-Fund Details" and Appendix 3 "Restrictions on the use of techniques and instruments" for the purpose of investment, hedging
and efficient portfolio management. In addition, where appropriate, the Company may hedge market and currency risks using futures,
options or forward foreign exchange contracts.
Transactions in futures carry a high degree of risk.
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc. --- with the objective of making a profit. Inviduals Organizations: Financial entities including Brokerages, Banks, Funds…
Banking sector reforms have been sequenced to correspond with changing regulations of the foreign
exchange market. The government has allowed the exchange rate to gradually float (as opposed to a
“crawling” peg), and full current account convertibility has been introduced, with de facto capital
account convertibility for nonresidents, and calibrated liberalization for residents.
Another notable increase occurred in the forward-rate agreement (FRA) usage. FRA
is a contract that determines the rate of interest, or currency exchange rate, to be paid or
received on an obligation beginning at some future date. At the end of 1996, 9.02 percent of
the sample banks report using FRAs. By the end of 2004, the percentage using FRAs more
than doubled. While the percentage of banks participating in the swaps and forwards
increased over the sample period, the proportion of banks using interest-rate options fell.
India’s NRI Deposit Accounts. Nonresident Indians (NRIs) have
the option of holding their savings in foreign currency or in rupee-
denominated accounts in India. As of March 2010, NRIs held an estimated
$14.3 million in foreign-currency-denominated accounts and $33.6 million
in rupee-denominated accounts.
The Foreign Currency (Non-Resident)
Account (Banks) scheme can be denominated in British pounds, US dollars,
Japanese yen, euros, Canadian dollars, and Australian dollars.