Cash and Derivatives Markets in Foreign Exchange

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