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Trading in Foreign Exchange Markets
Trading in Foreign Exchange Markets Four Essays on the Microstructure of Foreign Exchange Dagfinn Rime Dissertation for the Degree of Dr. Polit. in the Norwegian School of Management BI’s Doctoral Program in collaboration with the University of Oslo. Series of Dissertations 2/2001 Norwegian School of Management BI Department of Economics Dafinn Rime: Trading in Foreign Exchange Markets: Four Essays on the Microstructure of Foreign Exchange ã Dagfinn Rime 2001 Series of Dissertations 2/2001 ISBN: 82-7042-432-3 ISSN: 1502-2099 Norwegian School of Management BI P.O.B. 580 N-1302 Sandvika Phone: +47 67 55 70 00 Printing: Nordberg Hurtigtrykk To be ordered from: Juul Møller Bøker Phone: +47 67 55 74 51 Fax: +47 67 55 74 50 Mail: [email protected] CONTENTS 1 Overview and Introduction 1 2 FX Trading . LIVE! Dealer Behavior and Trading Systems in Foreign Exchange Markets 25 3 Customer Trading and Information in Foreign Exchange Markets 63 4 Private or Public Information in Foreign Exchange Markets? An Empirical Analysis101 5 U.S. Exchange Rates and Currency Flows 149 iii iv CONTENTS PREFACE Writing this dissertations has been like a long journey. In the beginning everything was new and exciting, with plenty of paths to follow, all leading down to the Great Big Beach of Doctoral Courses. Down at the beach I met this really cool guy (Geir), and after a couple of beers and deciding on a topic, I felt like I was cruising in a red Ferrari on the Highway to Completion. However, that was only in my too optimistic mind. -
Central Bank Survey of Foreign Exchange and Derivatives Market Activity
FR 3036 OMB No. 7100-0285 Hours per Response: 55.0 Approval expires: May 31, 2022 Instructions for the Central Bank Survey of Foreign Exchange and Derivatives Market Activity Turnover Survey April 2019 FR 3036 OMB No. 7100-0285 This report is authorized by law (12 U.S.C. §§ 225a and 263). Your voluntary cooperation in submitting this report is needed to make the results comprehensive, accurate and timely. The Federal Reserve may not conduct or sponsor, and an organization is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The Federal Reserve System regards the individual institution information provided by each respondent as confidential [5 U.S.C. §552(b)(4)]. If it should be determine d that any information collected on this form must be released, other than in the aggregate in ways that will not reveal the amounts reported by any one institution, respondents will be notified. Public reporting burden for this collection of information is estimated to be 55 hours per response, including time to gather and maintain data in the proper form, to review instructions and to complete the information collection. Send comments regarding this burden estimate to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, NW, Washington, DC 20551; and to the Office of Management and Budget, Paperwork Reduction Project, (7100-0285), Washington, DC 20503. Turnover Survey FR 3036 April 2019 Instructions A. Introduction These instructions cover the turnover part of the survey. The turnover part of the survey will be conducted on a locational basis. -
Schedule Rc-L – Derivatives and Off-Balance Sheet Items
FFIEC 031 and 041 RC-L – DERIVATIVES AND OFF-BALANCE SHEET SCHEDULE RC-L – DERIVATIVES AND OFF-BALANCE SHEET ITEMS General Instructions Schedule RC-L should be completed on a fully consolidated basis. In addition to information about derivatives, Schedule RC-L includes the following selected commitments, contingencies, and other off-balance sheet items that are not reportable as part of the balance sheet of the Report of Condition (Schedule RC). Among the items not to be reported in Schedule RC-L are contingencies arising in connection with litigation. For those asset-backed commercial paper program conduits that the reporting bank consolidates onto its balance sheet (Schedule RC) in accordance with FASB Interpretation No. 46 (Revised), any credit enhancements and liquidity facilities the bank provides to the programs should not be reported in Schedule RC-L. In contrast, for conduits that the reporting bank does not consolidate, the bank should report the credit enhancements and liquidity facilities it provides to the programs in the appropriate items of Schedule RC-L. Item Instructions Item No. Caption and Instructions 1 Unused commitments. Report in the appropriate subitem the unused portions of commitments to make or purchase extensions of credit in the form of loans or participations in loans, lease financing receivables, or similar transactions. Exclude commitments that meet the definition of a derivative and must be accounted for in accordance with FASB Statement No. 133, which should be reported in Schedule RC-L, item 12. Report the unused portions of all credit card lines in item 1.b. Report in items 1.a and 1.c through 1.e the unused portions of commitments for which the bank has charged a commitment fee or other consideration, or otherwise has a legally binding commitment. -
Chapter 19 Futures and Options
M19_MCNA8932_01_SE_C19.indd Page 1 07/02/14 9:15 PM f-w-155-user ~/Desktop/7:2:2014/Mcnally Chapter 19 Futures and Options LEARNING OBJECTIVES | LO1 | LO2 | LO3 | LO4 | LO5 | LO6 Understand the Understand futures Describe how Understand Understand the Understand basics of forward contracts, how futures are used option contracts payoffs to options intrinsic value contracts. futures are traded, to hedge price and how options contracts. and time value. and the payoffs to risk. are traded. futures contracts. M19_MCNA8932_01_SE_C19.indd Page 2 07/02/14 9:15 PM f-w-155-user ~/Desktop/7:2:2014/Mcnally Futures and Options History of Futures and Options Introduction Futures and options are derivative contracts . The term “derivative” is used because the price of a future or option is derived from the price (level) of an underlying asset (variable). The Explain It video presents an overview of the derivatives, markets, and some of the assets (variables) underlying Chicago Mercantile Exchange futures and options contracts. In this chapter, we introduce derivatives as tools that companies use to reduce price risk . An action that reduces price risk is called a hedge. We will focus on hedging with derivatives. An action that increases price risk is called speculating. Speculators accept price risk in the hope of making a profi t. The derivatives markets are a place where hedgers pass their price risk off to speculators. The Explain It video provides a simple example of a business using a derivative (a futures contract) to hedge a price risk. Also in this chapter, we will provide the detail that you need to fully understand the profi ts of a futures transaction. -
Product Specific Contract Terms and Eligibility Criteria Manual
PRODUCT SPECIFIC CONTRACT TERMS AND ELIGIBILITY CRITERIA MANUAL CONTENTS Page SCHEDULE 1 REPOCLEAR ................................................................................................... 3 Part A Repoclear Contract Terms: Repoclear Contracts arising from Repoclear Transactions, Repo Trades or Bond Trades .......................................................... 3 Part B Product Eligibility Criteria for Registration of a RepoClear Contract ................... 9 Part C Repoclear Term £GC Contract Terms: Repoclear term £GC Contracts Arising From Repoclear Term £GC Transactions Or Term £GC Trades ........................ 12 Part D Product Eligibility Criteria for Registration of a RepoClear Term £GC Contract ............................................................................................................................. 19 SCHEDULE 2 SWAPCLEAR ................................................................................................ 21 Part A Swapclear Contract Terms ................................................................................... 21 Part B Product Eligibility Criteria for Registration of a SwapClear Contract ................ 36 SCHEDULE 3 EQUITYCLEAR ............................................................................................. 46 Part A EquityClear (Equities) Contract Terms ................................................................ 46 Part B EquityClear Eligible (Equities) ............................................................................ 48 Part C EquityClear -
Foreign Exchange Training Manual
CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE LEHMAN BROTHERS FOREIGN EXCHANGE TRAINING MANUAL Confidential Treatment Requested By Lehman Brothers Holdings, Inc. LBEX-LL 3356480 CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE TABLE OF CONTENTS CONTENTS ....................................................................................................................................... PAGE FOREIGN EXCHANGE SPOT: INTRODUCTION ...................................................................... 1 FXSPOT: AN INTRODUCTION TO FOREIGN EXCHANGE SPOT TRANSACTIONS ........... 2 INTRODUCTION ...................................................................................................................... 2 WJ-IAT IS AN OUTRIGHT? ..................................................................................................... 3 VALUE DATES ........................................................................................................................... 4 CREDIT AND SETTLEMENT RISKS .................................................................................. 6 EXCHANGE RATE QUOTATION TERMS ...................................................................... 7 RECIPROCAL QUOTATION TERMS (RATES) ............................................................. 10 EXCHANGE RATE MOVEMENTS ................................................................................... 11 SHORTCUT ............................................................................................................................... -
The Dynamics of Commodity Spot and Future Markets
The Dynamics of Commodity Spot and Futures Markets: A Primer Robert S. pindyck* I discuss the short-run dynamics of commodity prices, production, and inventories, as well as the sources and effects of market volatility. I explain how prices, rates of production, ana’ inventory levels are interrelated, and are determined via equilibrium in two interconnected markets: a cash market for spot purchases and sales of the commodity, and a market for storage. I show how equilibrium in these markets affects and is affected by changes in the level qf price volatility. I also explain the role and behavior of commodity futures markets, and the relationship between spot prices, futures prices, and inventoql behavior. I illustrate these ideas with data for the petroleum complex - crude oil, heating oil, and gasoline - over the past two decades. INTRODUCTION The markets for oil products, natural gas, and many other commodities are characterized by high levels of volatility. Prices and inventory levels fluctuate considerably from week to week, in part predictably (e.g., due to seasonal shifts in demand) and in part unpredictably. Furthermore, levels of volatility themselves vary over time. This paper discusses the short-run dynamics of commodity prices, production, and inventories, as well as the sources and effects of market volatility. I explain how prices, rates of production, and inventory levels are interrelated, and are determined via equilibrium in two interconnected markets: a cash market for spot purchases and sales of the commodity, and a market for storage. I also explain how equilibrium in these markets affects and is affected by changes in the level of price volatility. -
An Empirical Study of the Foreign-Exchange Market: Test of a Theory
PRINCETON STUDIES IN INTERNATIONAL FINANCE NO. 20 An Empirical Study of the Foreign-Exchange Market: Test of a Theory Fred R. Glahe INTERNATIONAL FINANCE SECTION DEPARTMENT OF ECONOMICS PRINCETON UNIVERSITY • 1967 PRINCETON STUDIES IN INTERNATIONAL FINANCE Tms is the twentieth number in the series PRINCETON STUDIES IN INTER- NATIONAL FINANCE, published from time to time by the International Finance Section of the Department of Economics at Princeton Uni- versity. The author, Fred R. Glahe, is Assistant Professor of Economics at the University of Colorado. An article of his, "Professional and Nonprofessional Speculation, Profitability, and Stability," appeared in the July 1966 issue of THE SOUTHERN ECONOMIC JOURNAL. This series is intended to be restricted to meritorious research studies in the general field of international financial problems, which are too technical, too specialized, or too long to qualify as ESSAYS. The Section welcomes the submission of manuscripts for this series. While the Section sponsors the STUDIES, the writers are free to de- velop their topics as they will. Their ideas and treatment may or may not be shared by the editorial cominittee of the Section or the members of the Department. FErsrz MACHLUP Director Princeton University PRINCETON STUDIES IN INTERNATIONAL FINANCE NO. 20 An Empirical Study of the Foreign-Exchange Market: Test of a Theory by Fred R. Glahe INTERNATIONAL FINANCE SECTION DEPARTMENT OF ECONOMICS PRINCETON UNIVERSITY PRINCETON, NEW JERSEY 1967 Copyright © 1967, by International Finance Section Department of Economics Princeton University L.C. Card 67-24455 Printed in the United States of America by Princeton University Press at Princeton, New Jersey CONTENTS Page 1. -
Freely Floating Exchange Rates Do Not Systematically Overshoot
UC Santa Barbara Departmental Working Papers Title Freely Floating Exchange Rates Do Not Systematically Overshoot Permalink https://escholarship.org/uc/item/97m8z6hw Author Pippenger, John Publication Date 2008-02-01 eScholarship.org Powered by the California Digital Library University of California Freely Floating Exchange Rates Do Not Systematically Overshoot John Pippenger Department of Economics University of California Santa Barbara California 93106 [email protected] The exchange rate literature contains two inconsistent strands. There is a large theoretical and empirical literature on overshooting. In that literature overshooting is an important explanation for exchange rate volatility. A separate literature says that exchange rates are martingales and that models do not beat a random walk. Both can not be true. I show that the evidence for overshooting is highly suspect while the evidence that flexible exchange rates are approximately martingales is rock solid. Given the strength of the evidence, models that imply overshooting probably should be rejected out of hand. 11 February 2008 JEL Classification numbers: F3, F31 Keywords: overshooting, exchange rates, volatility, martingales The literature on exchange rates contains two mutually inconsistent strands. On the one hand there is a large theoretical and empirical literature on overshooting.1 According to that literature, overshooting is an important explanation for the volatility of exchange rates. On the other hand a large literature says that exchange rates are essentially martingales and that economic models cannot beat a random walk out of sample.2 Both of these strands can not be true. They are not both true. As shown below, the evidence for overshooting is highly suspect. -
The Foreign Exchange and Interest Rate Derivatives Markets
The Foreign Exchange and Interest Rate Derivatives Markets: Turnover in the United States, April 2016 Federal Reserve Bank of New York Turnover in the United States, April 2016 The Foreign Exchange and Interest Rate Derivatives Markets: Turnover in the United States, April 2016 Background The Federal Reserve Bank of New York together with over fifty other central banks conducted a survey of turnover in the over-the-counter (OTC) foreign exchange and interest rate derivatives markets for April 2016. This worldwide, cooperative effort is undertaken every three years and is coordinated by the Bank for International Settlements (BIS). The “triennial survey” is a comprehensive source of information on the size and structure of the OTC foreign exchange and derivatives markets. To measure the OTC markets, the dealers that make markets in foreign exchange and interest rate derivatives reported trading volumes for April 2016 to the central banks in the countries where they are located. The participants reported separately the volume of trading they conduct with each other to permit adjustments for double reporting. The central banks then compiled national aggregates from the dealers’ data and the BIS compiled global totals from the central banks’ national data.1 (See Annex I for a complete description of survey terms and methods.) In 2016, a total of twenty-three dealers in the United States participated in the foreign exchange part of the survey and nineteen in the interest rate derivatives section, slightly changed from 2013, which had twenty-four and eighteen participating institutions respectively. Participating dealers were commercial banks, U.S. offices of foreign banking organizations, and securities brokers/dealers. -
Currency Option Pricing Ii
Jones Graduate School Masa Watanabe Rice University INTERNATIONAL FINANCE MGMT 657 CURRENCY OPTION PRICING II ¾ Calibrating the Binomial Tree to Volatility ¾ Black-Scholes Model for Currency Options Properties of the BS Model ¾ Option Sensitivity Analysis Delta Gamma Vega Theta Rho International Finance Fall 2003 CURRENCY OPTION PRICING II Calibrating the Binomial Tree Instead of u and d, you will usually obtain the volatility, σ , either as Historical volatility à Compute the standard deviation of daily log return (ln(St/ St-1)) à Multiply the daily volatility by √252 to get annual volatility Implied volatility ¾ In reality, both types of volatility are available from, e.g., Reuters. ¾ In fact, OTC options are quoted by implied volatility. Euro options quotes, Reuters, 11/27/2003 ¾ To construct a binomial tree that is consistent with a given volatility, set u = eσ dt , d = e−σ dt , where dt = τ/n is the length of a time step (a subtree) and n is the number of time steps (subtrees) until maturity. 2 International Finance Fall 2003 CURRENCY OPTION PRICING II Example. Let us construct a one-period tree that is consistent with a 10% volatility. Using this tree, we will price call and put options. Spot S = 1.15$/€ Strike K = 1.15$/€ Domestic interest rate i$ = 1.2% (continuously compounded) Foreign interest rate i€ = 2.2% (continuously compounded) Volatility σ = 10% (annualized) Time to maturity = 6 months (τ = 0.5) u = exp(.1×√.5) = 1.0773 d = exp(-.1×√.5) = 0.93173 q = [exp((.012 – .022)×.5) – d]/(u – d) = 0.44709 Risk neutral pricing gives C = [.08426×q + 0×(1 – q)]×exp(-.012×.5) = .03745 P = [0×q + .07851×(1 – q)]×exp(-.012×.5) = .04315 Spot rate ($/€) q=.44709 1.2343 1.15 1-q=.55291 1.0715 Call Put .08426 0 .03745 .04315 0 .07851 3 International Finance Fall 2003 CURRENCY OPTION PRICING II ¾ As the number of time steps increases (n → ∞ and dt → 0), the binomial model price converges to the Black-Scholes price. -
Foreign Exchange Rate
EDUCATION IN ECONOMICS SERIES NO. 4 FOREIGN EXCHANGE RATE BANK OF RAL NIG NT ER CE IA CENTRAL BANK OF NIGERIA BANK OF RAL NIG NT ER CE IA CENTRAL BANK OF NIGERIA RESEARCH DEPARTMENT 2016 2016 EDUCATION IN ECONOMICS SERIES No. 4 FOREIGN EXCHANGE RATE BANK OF RAL NIG NT ER CE IA CENTRAL BANK OF NIGERIA RESEARCH DEPARTMENT 2016 Copyright © 2016 Central Bank of Nigeria 33 Tafawa Balewa Way Central Business District P.M.B. 0187, Garki Abuja, Nigeria. Studies on topical issues affecting the Nigerian economy are published in order to communicate the results of empirical research carried out by the Bank to the public. In this regard, the findings, interpretation, and conclusions expressed in the papers are entirely those of the authors and should not be attributed in any manner to the Central Bank of Nigeria or institutions to which they are affiliated. The Central Bank of Nigeria encourages dissemination of its work. However, the materials in this publication are copyrighted. Request for permission to reproduce portions of it should be sent to the Director of Research, Research Department, Central Bank of Nigeria, Abuja. ISBN: 978-978-8714-03-3 Table of Contents 1.0 Introduction……………………………………………………....…………1 2.0 Conceptual Issues…………………………….……………………………1 2.1 Exchange Rate……………………………………….…………………….1 2.2 Cross Exchange Rate …………………………………………...………..3 2.3 End-Period Exchange Rate…………………………………...………....4 2.4 Average Exchange Rate………………………………..………….…….4 2.5 The Appreciation / Depreciation of the Exchange Rate…….……4 2.6 Exchange Rate Premium…………………………..……………………..5