International Finance: Putting Theory Into Practice
6.1. HANDLING DEFAULT RISK IN FORWARD MARKETS: OLD & NEW TRICKS 223 bank seizes all margin put up in the past—including the ...
224 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES Table 6.1: Forward Contracts with Variable Collateral or Daily Recon- tracting da ...
6.2. HOW FUTURES CONTRACTS DIFFER FROM FORWARD MARKETS 225 6.2 How Futures Contracts Differ from Forward Markets kets A currency ...
226 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES discounting would have to be done manually rather than electronically. For these ...
6.2. HOW FUTURES CONTRACTS DIFFER FROM FORWARD MARKETS 227 Marking to market is the most crucial difference between forward and ...
228 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES theory every gain or loss is immediately settled in cash, but this may mean frequ ...
6.2. HOW FUTURES CONTRACTS DIFFER FROM FORWARD MARKETS 229 Leeson’s Lessons re Barings’ End What went wrong in the Barings case, ...
230 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES Trading Places. Another method, traditionally used in some continental exchanges ...
6.2. HOW FUTURES CONTRACTS DIFFER FROM FORWARD MARKETS 231 Table 6.2:Contract sizes at some futures exchanges Rate at contract s ...
232 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES Figure 6.1:WSJ information on currency futures P. Sercu and R. Uppal The Internat ...
6.3. EFFECT OF MARKING TO MARKET ON FUTURES PRICES 233 Table 6.3:HCcash flows assuming thatF 0 , 2 =f 0. 2 hccash flow: futures ...
234 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES Table 6.4:HCnet time value effect att= 2assuming thatF 0 , 2 =f 0. 2 case 1 case ...
6.3. EFFECT OF MARKING TO MARKET ON FUTURES PRICES 235 In the third case you still like the zero-rate loan, but the gain is low ...
236 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES Sincef≈F, it follows that the basis is positive (i.e.futures prices are above spo ...
6.4. HEDGING WITH FUTURES CONTRACTS 237 futures positions in not justeurcurrency but also ineurandusdinterest rates, and perhaps ...
238 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES change in theusd/eurrate. To hedge this one-tenth-pip change in theusd/eur rate, ...
6.4. HEDGING WITH FUTURES CONTRACTS 239 as your exposure. The convergence property means thatf ̃T(e 1 ),T 2 =ST(e 1 ): on the la ...
240 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES believe that de distribution of ∆Sis constant. So if we usesas shorthand for ∆S/S ...
6.4. HEDGING WITH FUTURES CONTRACTS 241 one Euro shorted would hedge about tensek. In other words, 0.10 Euros persek will do. Su ...
242 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES tinguishible from forwards, we know that f ̃T(e) 1 ,T 2 ≈ S ̃T(e) 1 1 + ̃rT 1 ,T ...
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