Kvaziobligatsii of currency


Currency is usually regarded only as an object of speculation or as a means of international payments. However, current market synthesize from currency and derivatives synthetic products, which corresponds to the behavior of the bonds. With the advent of computer technology, such a bonanza not only for large financial institutions, but also for small investors.

Inquisitive person asked in the letter ...

One day I received a letter in which he asked for advice: how to cover the price risk on the currency pair GBP / JPY? I must say, this trader is to be commended: rare indeed inquisitive person involved in trading in financial markets, as strange as it sounds. The main impetus that pushed him to a deal where he was long the pound and the yen in short, were rates, or rather - their differential. Trader calculated that if the price does not move anywhere, the year he gets a little more than nine "figures" as a result of payments on the swap at a rate of 2.5 points on the daily position of the two lots. This meant, he explained in a letter that the amount required to maintain the position, increases by about seven times.

But miracles do not happen, prices fluctuate and the market is unlikely to want to give the opportunity to get rich easily. Therefore, the trader and the question arose: how can we try to cover the risk of the available positions, using, for example, options? His question was quite intriguing, has no clear answers and solutions, and therefore it is interesting to explore the possibility of price risk management of currency exchange rates. The article provides the basic features, so the emphasis is on the general procedure, which is illustrated by examples. Select the period that I considered here, rather random and not dictated by technical or fundamental analysis of the situation. For simplicity, I stopped at the range, covering January - end of May 2002.

Purpose creates the means, and - to no avail ...

To find out the true purpose of the start position of the pound / yen in the game on the interest rates. The first idea that comes to mind is this: if we are to benefit from the differential rates, should not we just cover the interest rate risk, but not the price? This argument rests on a fundamental soil - global Fisher effect, defining the relationship between rates and rates. If we follow the theory, to cover interest rate risk should use interest rate instruments that are traded today in abundance on-exchange and OTC markets. [1] Since in this case the exchange rate and the differential rates are determined by short-term rates, it is logical to assume the possibility of short sterling (short sterling) and the euro (euroyen). And on evroiene could explore the possibility of using different tools: LIBOR, TIBOR or 3-month-old.

I stress that it is just a hypothesis, which we discuss in order to have a full understanding of the studied subject. But going around, or rather, their dynamics, showed inability to use the tools to cover the losses that can occur as a result of price fluctuations. Although the theory of the whole law, but the real market does not want to follow it and shows the rate changes while interest rate futures are virtually immobile. For example, in a given period, when the GBP / JPY unchanged at 200 basis points, the short sterling and euro (futures) almost did not change in price. Thus, the initial idea fails, and you need a serious study of the issue.