Cash and Derivatives Markets in Foreign Exchange

Description

Cover Contents Section I Chapter 1: Foreign Exchange Rates 1.1 Introduction and a Brief History 1.1.1 Historical Background 1.1.2 Formation of the IMF 1.1.3 The Fixed Rate System 1.1.4 Strains in the Fixed exchange Rate System 1.1.5 The Liquidity Problems: SDRs 1.1.6 Collapse of the Fixed Rate System 1.1.7 Economics and Monetary Union in Europe 1.2 Exchange Rate Arrangements 1.2.1 Fixed and Floating Rates 1.2.2 Currency Boards 1.2.3 Foreign Currency as Domestic Currency 1.3 Exchange Rates 1.3.1 Direct and Indirect Rates 1.3.2 Exchange Rate Quotations 1.3.3 Bid and Offered Rates 1.3.4 Forward Exchange Rates 1.3.5 Derivatives 1.4 Exchange Rate Indices 1.4.1 Nominal Effective Exchange Rate Index 1.4.2 Real Effective Exchange Rate 1.4.3 Published Indices Chapter 2: Foreign Exchange Markets 2.1 Markets in Financial Assets 2.2 Foreign Exchange Market 2.2.1 The Global Market: BIS Surveys a. Global Turnover b. The Participants c. Currency Composition 2.2.2 Market Practices a. Rate Quotation b. Value Dates 2.3 Market Infrastructure a. Dealing Rooms/Treasuries b. Deal Execution c. Payment and Communication Systems d. Settlement Systems 2.4 Domestic Market 2.4.1 Legislative Framework 2.4.2 Historical Background 2.4.3 Regulations 2.4.4 Structure of the Market a. Currencies and Instruments Traded b. Participants c. Size of the Market d. The Reserve Bank of India e. Foreign Exchange Dealers Association of India (FEDAI) 2.4.5 Market Practices a. Value Dates b. Cross Currency Trades c. Infrastructure d. Netting and Settlement of Interbank Transactions: CCIL e. Non-deliverable Forwards (NDF) Market f. RBI Reference Rate Chapter 3: Exchange Arithmetic 3.1 How Banks Quote Spot Rates to Customers 3.1.1 Exchange Rates for USD a. Size of the Transaction b. Customer Relationship c. Customer Awareness 3.1.2 Exchange Rates — Non-Dollar Currencies 3.2 The Forward Dollar Rate in India 3.2.1 The Forward Margin 3.2.2 Forward Rate Quotations 3.2.3 Delivery Options 3.2.4 Bill Buying Rates 3.2.5 Interbank Forward Quotations 3.2.6 Cash: Spot and Call Rates 3.3 Forward Margin in Free Markets: Interest Parity Principle 3.4 Cross and Forward Rate Calculations 3.4.1 Cross Rate Calculation 3.4.2 Forward Rate Calculation 3.4.3 Hedging of Forwards 3.4.4 Hedging of Long-dated Forwards 3.4.5 Forward Rates to Customers: Non-Dollar Currencies 3.5 Some Practices of the System in India 3.6 Changes in Contract Terms 3.6.1 Contracts in Rupees 3.6.2 Dollar/Currency Contracts 3.6.3 Examples of Exchange Arithmetic Chapter 4: Global Financial Markets: An Overview 4.1 Introduction 4.1.1 Global Market: Domestic and Offshore 4.1.2 Different Markets 4.2 Size of the Cross-border Banking Market 4.3 Offshore Banking Market 4.3.1 Introduction 4.3.2 Interbank Market, LIBID and LIBOR Rates 4.4 Domestic Markets 4.4.1 Fixed Rate Loans 4.5 The International Bond Market 4.5.1 Foreign and Offshore Bonds 4.5.2 Size of the Market 4.5.3 The Benchmark Rate 4.5.4 Currencies 4.5.5 Bond Indices 4.6 Innovations 4.6.1 Floating Rates 4.6.2 Collared Floaters 4.6.3 Perpetual Bonds 4.6.4 Note Issuance Facilities 4.6.5 High Yield or “Junk” Bonds 4.7 Equity or Equity-linked Issues 4.7.1 Straight Equity Issues 4.7.2 Convertible Bond Issues 4.8 The Corporate Perspective 4.8.1 Short-term Credit/Loans/Deposits in Foreign Currency 4.8.2 Credit on Imports 4.8.3 Export Credit 4.8.4 Short-term Loans from FCNR (B) Funds 4.8.5 Export Earners Foreign Currency (EEFC) Account and Other Foreign Currency Accounts for Residents 4.9 Medium Term Loans Annexure 4.1 British Banker’s Association (BBA) Libor Fixation System Chapter 5: Exchange Rate Movements and Managing Currency Risks 5.1 Introduction 5.2 Convertible Currency Movements 5.3 The Rupee Dollar Exchange Rate 5.4 Managing Currency Exposures 5.4.1 Types of Exposures a. Transaction Exposures b. Translation Exposures c. Economic Exposures 5.4.2 Accounting Standards 5.4.3 Risk Management 5.4.4 General Section 2 Chapter 6: Markets in Currency Derivatives 6.1 Exchange Traded and OTC 6.2 Trading Volumes 6.3 Contracting Trades 6.4 Derivatives Exchanges 6.4.1 Organisation and Functions 6.4.2 Counterparty Risks and the Margin System 6.5 Structured Products Chapter 7: Futures and FRAs 7.1 Futures 7.1.1 Features of Futures Contracts 7.1.2 Forwards and Futures: A Comparison 7.1.3 Currency Futures as a Hedging Tool 7.1.4 Price Quotations 7.2 Forward Rate Agreements (FRAs) 7.2.1 FRA Contracts 7.2.2 Pricing and Hedging 7.3 Interest Futures 7.3.1 Interest Futures as a Hedging Tool 7.3.2 Documentation 7.4 FRAs and Interest Futures 7.5 Bond Forwards and Futures 7.5.1 Forward Prices of Bonds 7.5.2 Treasury Bond Futures in the United States 7.6 Basis Risk and Hedge Ratios 7.7 Arbitrage Free Forward Prices Chapter 8: Interest Rate and Currency Swaps: The Global Market 8.1 Introduction 8.2 Overview of the Swap Market 8.2.1 The World Bank: IBM Swap 8.2.2 Using Comparative Advantage 8.2.3 Interest Rate Swaps 8.2.4 Bank Intermediation 8.3 The Swap Market 8.3.1 Development 8.3.2 Market Size 8.3.3 Swap Quotations 8.3.4 Currency Swap Quotations 8.3.5 Swap Trading 8.4 More on Currency Swaps 8.4.1 Cash Flow Exchanges 8.4.2 Swaps and Forward Contracts 8.5 Swap Valuation and Counterparty Risks 8.5.1 Interest Rate Swap Valuation 8.5.2 Valuing Currency Swaps 8.5.3 Counterparty Risk: Pricing and Managing 8.6 Variations 8.6.1 Principal Only Swaps (POS) 8.6.2 Coupon Only Swaps (COS) 8.6.3 Currency Swaps at Off-Market Rates 8.6.4 Forward Starting Swaps 8.6.5 Swaption 8.6.6 LIBOR-in-Arrears Interest Rate Swaps 8.7 Cross Currency and FX Interest Rate Swaps in India Chapter 9: USD : INR Swaps 9.1 Introduction 9.2 The MIFOR Swap 9.2.1 Pricing MIFOR Swaps 9.2.2 Market Prices 9.3 USD : INR Swaps 9.4 Principal Only Swaps (POS) 9.4.1 Using the MIFOR Swap Market 9.4.2 Valuing MIFOR Swaps 9.5 Coupon Only Swaps (COS) 9.6 Leveraged Swaps Annexure 9.1 MIFOR Swaps A9.1.1 Elemental Hedge for a 2-year MIFOR Swap: Basis Risk A9.1.2 Elemental Hedge for a 2-year MIFOR Swap, by Selling Forward Principal + Interest: Basis Risk A9.1.3 MIFOR Swap: Valuation/Cancellation Chapter 10: Option Contracts 10.1 General 10.1.1 Definition 10.1.2 Common Terms a. Parties to an Option Contract b. Types of Option c. Expiry d. Exercise, or Strike Price e. Value/Price of an Option f. Miscellaneous 10.1.3 Option Markets and Prices 10.1.4 Option Pay Offs 10.1.5 Counterparty Risk 10.2 “Zero Cost” Structures 10.2.1 Range Forward 10.2.2 Ratio Range Forward 10.2.3 Strips 10.2.4 Participating Forward 10.2.5 Seagull 10.2.6 Numerical Examples 10.3 Packages 10.3.1 Covered Calls and Puts 10.3.2 Spreads 10.3.3 More Complex Packages 10.4 Other Options 10.4.1 Barrier Options 10.4.2 Binary Options and Range Accruals 10.4.3 Forward Start Options 10.4.4 Compound or Split Fee Options 10.4.5 Other Exotics 10.4.6 General Comment 10.5 Interest Rate Options 10.6 Swaptions 10.7 Cancelling Options 10.8 Options and Forwards: A Comparison Chapter 11: Pricing and Hedging Options: Basic Principles 11.1 A Simple Example 11.1.1 Pricing and Hedging a European Style Call on the Dollar 11.1.2 A Wider Range 11.1.3 A More Favourable Strike Price 11.1.4 Interest Rates 11.2 Pricing Models 11.2.1 Theoretical Limits for Option Prices 11.2.2 Black Scholes: Historical and Conceptual Background 11.2.3 The Model 11.2.4 Volatility 11.2.5 USD : INR Options: Volatility Data on FEDAI Site 11.2.6 USD : INR Options: A General Comment 11.2.7 Pricing Put Options 11.2.8 American Style Options 11.3 Interest Rate Options 11.3.1 Caps and Floors: Options on LIBOR 11.3.2 Options on Bond Prices Chapter 12: Credit and Commodity Derivatives 12.1 Introduction 12.2 Credit Derivatives 12.2.1 Credit Default Swap (CDS) 12.2.2 Spreads 12.2.3 CDS as Hedge 12.2.4 Credit Default Swaps on Indices 12.2.5 Total Return Swap 12.2.6 Structured Finance 12.3 Commodity Derivatives 12.3.1 Offset Hedges Index