《国际财务管理》（英文版） Chap 9 Futures and Options on Foreign Exchange

Chapter Nine Futures and options on Foreign Exchange Chapter objective This chapter discusses exchange-traded currency futures contracts, options contracts, and options on currency futures

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 9 Chapter Nine Futures and Options on Foreign Exchange Chapter Objective: This chapter discusses exchange-traded currency futures contracts, options contracts, and options on currency futures

Chapter Outline o Futures contracts: preliminaries o Currency Futures markets Basic Currency Futures relationships o Eurodollar interest rate futures Contracts o Options Contracts: Preliminaries Currency Options Markets o Currency Futures Options Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Outline ⚫ Futures Contracts: Preliminaries ⚫ Currency Futures Markets ⚫ Basic Currency Futures Relationships ⚫ Eurodollar Interest Rate Futures Contracts ⚫ Options Contracts: Preliminaries ⚫ Currency Options Markets ⚫ Currency Futures Options

Chapter Outline(continued) o Basic Option Pricing relationships at Expiry o American Option Pricing relationships o European Option Pricing relationships o Binomial Option pricing model o European Option Pricing Model o Empirical Tests of currency option models Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Outline (continued) ⚫ Basic Option Pricing Relationships at Expiry ⚫ American Option Pricing Relationships ⚫ European Option Pricing Relationships ⚫ Binomial Option Pricing Model ⚫ European Option Pricing Model ⚫ Empirical Tests of Currency Option Models

Futures Contracts: Preliminaries a futures contract is like a forward contract a It specifies that a certain currency will be exchanged for another at a specified time in the future at prices specified today A futures contract is different from a forward contract Futures are standardized contracts trading on organized exchanges with daily resettlement through a clearinghouse Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Futures Contracts: Preliminaries ⚫ A futures contract is like a forward contract: ◼ It specifies that a certain currency will be exchanged for another at a specified time in the future at prices specified today. ⚫ A futures contract is different from a forward contract: ◼ Futures are standardized contracts trading on organized exchanges with daily resettlement through a clearinghouse

Futures Contracts: Preliminaries o Standardizing features Contract Size Delivery month a Daily resettlement o Initial Margin(about 4% of contract value, cash or T-bills held in a street name at your brokers) Irwin/McGraw-Hill Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Futures Contracts: Preliminaries ⚫ Standardizing Features: ◼ Contract Size ◼ Delivery Month ◼ Daily resettlement ⚫ Initial Margin (about 4% of contract value, cash or T-bills held in a street name at your brokers)

Daily resettlement: An Example o Suppose you want to speculate on a rise in the $/A exchange rate(specifically you think that the dollar will appreciate) Currency per U.S. s equivalent U.S.$ Wed Tue wed Tue Japan yen)0142570001945(140)139 1- month forward0.0069930070007042254 142 3-months forward.0066666670.006711409 150 149 6-months forward 000625000289308160 159 Currently $1=2140. The 3-month forward price is $1=150 Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Daily Resettlement: An Example ⚫ Suppose you want to speculate on a rise in the $/¥ exchange rate (specifically you think that the dollar will appreciate). Currently $1 = ¥140. The 3-month forward price is $1=¥150. Currency per U.S. $ equivalent U.S. $ Wed Tue Wed Tue Japan (yen) 0.007142857 0.007194245 140 139 1-month forward 0.006993007 0.007042254 143 142 3-months forward 0.006666667 0.006711409 150 149 6-months forward 0.00625 0.006289308 160 159

Daily resettlement: An Example o Currently $1=140 and it appears that the dollar IS strengthening o If you enter into a 3-month futures contract to sell ￥ at the rate of$1=￥150 you will make money if the yen depreciates. The contract size is ￥12500.000 o Your initial margin is 4% of the contract value $3,333=304×?25000×$1 50 Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Daily Resettlement: An Example ⚫ Currently $1 = ¥140 and it appears that the dollar is strengthening. ⚫ If you enter into a 3-month futures contract to sell ¥ at the rate of $1 = ¥150 you will make money if the yen depreciates. The contract size is ¥12,500,000 ⚫ Your initial margin is 4% of the contract value: ?50 $1 $3,333.33 = .04 ?2,500,00 0

Daily resettlement: An Example If tomorrow the futures rate closes at $1=Y149 then your position's value drops Your original agreement was to sell 12, 500,000 and receive $,333. 33 But now y12, 500,000 is worth $83. 892.62 $1 $8389262=?2,500,000× ?49 You have lost $559.28 overnight Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Daily Resettlement: An Example If tomorrow, the futures rate closes at $1 = ¥149, then your position’s value drops. Your original agreement was to sell ¥12,500,000 and receive $83,333.33 But now ¥12,500,000 is worth $83,892.62 ?49 $1 $83,892.62 = ?2,500,00 0 You have lost $559.28 overnight

Daily resettlement: An Example The $559.28 comes out of your $3, 333.33 margin account, leaving $2, 774.05 This is short of the $3, 355. 70 required for a new position $1 $3,355.70=.04×?2,500.000× ?49 o Your broker will let you slide until you run through your maintenance margin Then you must post additional funds or your position will be closed out. This is usually done with a reversing trade Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Daily Resettlement: An Example ⚫ The $559.28 comes out of your $3,333.33 margin account, leaving $2,774.05 ⚫ This is short of the $3,355.70 required for a new position. ?49 $1 $3,355.70 =.04 ?2,500,00 0 ⚫Your broker will let you slide until you run through your maintenance margin. Then you must post additional funds or your position will be closed out. This is usually done with a reversing trade

Currency Futures Markets The Chicago Mercantile Exchange(CME)is by far the largest Others include The Philadelphia board of Trade(PBot) The mid America commodities Exchange a The Tokyo International Financial Futures Exchange The London International Financial Futures Exchange Irwin/McGraw-Hill 9-<# Copyright o 2001 by The McGraw-Hill Commpanies, Inc. All rights

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Currency Futures Markets ⚫ The Chicago Mercantile Exchange (CME) is by far the largest. ⚫ Others include: ◼ The Philadelphia Board of Trade (PBOT) ◼ The MidAmerica commodities Exchange ◼ The Tokyo International Financial Futures Exchange ◼ The London International Financial Futures Exchange