The main urgent transactions carried out in the interbank foreign exchange market include forward transactions and swap transactions.

Forward currency contracts. A forward foreign exchange contract is a binding agreement between banks to buy or sell on a certain day in the future a certain amount of foreign currency. In this case, the currency, amount, exchange rate and payment date are fixed at the time of the transaction. The term of forward transactions ranges from 3 days to 5 years, but the most common dates are 1, 3, 6 and 12 months from the date of the transaction. The forward contract is bank contract, so it is not standardized and can be tailored to a specific operation. The market for forward transactions (with maturity up to 6 months) in major currencies is quite stable, while for a period of more than 6 months it is unstable, while separate operations can cause large fluctuations in exchange rates. Often a forward transaction is part of a "swap" transaction. If we are talking about a single "forward" transaction (not associated with the simultaneous execution of a counter-transaction "spot"), then this operation is called an outright transaction. The forward rate and the spot rate are closely related. From a theoretical point of view, the forward price of a currency (FR) can be equal to the spot price (SR). However, in practice, such a coincidence is very rare. If the forward rate is greater than the spot rate (FR > SR), then the currency is said to be quoted at a "premium"; if the forward rate is less than the spot rate (FR< SR), то говорят, что валюта котируется с "дисконтом". Премии и дисконты по валюте пересчитываются на годовой базис для того, чтобы можно было сравнить доходность от вложения валюты в форвардную сделку с доходностью от вложения в инструменты money market. There are two main forward rate quoting methods: the outright method and the swap rate method. When quoting by the "outright" method, banks indicate for customers both the full spot rate and the full forward rate, as well as the time and amount of currency delivery. However, in most cases in the interbank market, the forward rate is quoted using swap rates. This is due to the fact that dealers operate on forward margins (ie discounts or premiums) expressed in points, which are called "swap" rates or swap rates. currency futures forward swap

Forward margins (swap rates) have become predominant for the following reasons:

• a) they most often remain unchanged, while spot rates are subject to large changes; thus, fewer changes need to be made to the quotation of premiums and discounts;
• b) when concluding many transactions, it is necessary to know the size of the forward margin, and not the full forward rate.

Swap rates are expressed in absolute fractions of the relevant currency against the US dollar, similar to the "spot" quotation against the US dollar. When quoting by the swap rate method of the forward transaction rate, only the premium or discount is determined, which, in the case of a direct quotation, are respectively added to the spot rate or subtracted from it. Like spot transactions, forward contracts can also be entered into for transactions without participation. US dollar. In this case, cross-rates will be used for calculations.

When concluding a forward contract, the market operator's currency risk increases significantly, as the probability of an unpredictable change in the exchange rate on the date of delivery and the risk of the partner's insolvency increase. Thus, the bank bears the risk associated with closing the position. That is why, when concluding a forward transaction, the client must have the appropriate funds - an account balance or credit line- to cover this risk.

Swap contracts. Swap transactions are a combination of spot and forward transactions. They are often referred to as currency barter.

A swap transaction is a currency transaction that combines the purchase and sale of two currencies on the terms of immediate delivery with a simultaneous counter-transaction for a certain period with the same currencies. For swap transactions, the cash transaction is carried out at the spot rate, which in the counter transaction is adjusted to take into account the premium or discount (depending on exchange rate trends). In this type of transaction, the client saves on margin - the difference between the rates of the seller and the buyer for a cash transaction. For banks, these operations also have certain advantages. The main thing is that swap transactions do not create an open currency position and temporarily provide currency without the risk associated with a change in its exchange rate. Swap transactions are usually carried out for a period of 1 day to 6 months, swap transactions with a maturity of up to 5 years are less common. Swap operations are carried out both between commercial banks and between commercial banks and the central bank of the country, and directly between the central banks of countries. In the latter case, they are mutual lending agreements in national currencies. Since 1969, a multilateral system of mutual exchange of currencies has been operating through the Bank for International Settlements in Basel based on the use of "swap" operations. Such bilateral actions are used by the central banks of countries to carry out effective foreign exchange interventions.

Exchange urgent operations

Exchange futures transactions with currency include options and futures contracts. However, commercial banks are now also trading option contracts. Retail option trading is especially widespread in Switzerland.

Futures currency contracts

The essence of futures transactions is similar to forward transactions. Futures transactions are also carried out with the delivery of currency for a period of more than 3 days from the date of the transaction, and the contract execution price in the future is determined on the day of the transaction. However, in the presence of similar moments, there are also significant differences between futures and forward transactions.

First, futures operations are carried out mainly on the exchange market, while forward operations are carried out on the interbank market. This leads to the fact that the terms of execution of futures contracts are tied to certain dates (for example, the 3rd Wednesday of every third month of the year) and are standardized in terms of terms, volumes and terms of delivery. In the case of forward contracts, the term and volume of the transaction are determined by mutual agreement of the parties.

Secondly, futures transactions are made with a limited range of currencies, such as the US dollar, German mark, French franc, Japanese yen, pound sterling and some others. When forming a forward contract, the range of currencies is much wider.

Thirdly, the futures market is available to both large investors and individual and small institutional investors. Access to forward markets for small firms is limited. This is because the minimum amount to enter into a forward contract is in most cases $500,000.

Fourthly, 95% of futures transactions end with the conclusion of an offset (reverse) transaction, while there is no real supply of currency, and the participants in this operation receive only the difference between the initial price of the contract and the price that exists on the day the reverse transaction is made.

With forwards, up to 95% of all transactions end in the delivery of currency under the contract.

Fifth, the standardization of contracts means that futures transactions can be made more cheaply than individually negotiated forward transactions between the client and the bank. That is why forward transactions are usually more expensive; they are accompanied by a large buy-sell spread. This can lead to high costs for the customer when early closure positions.

Futures also have a number of significant disadvantages compared to forwards. Thus, if the standard form of the futures contract is not equal to the amount to be hedged, then the difference must be either unclosed or hedged in the forward market. And, besides, if the desired hedging period does not coincide with the futures' circulation period, then the futures operator bears basis risk, since the forward rates for two dates can change differently. In a futures transaction, the client's partner is the clearing house of the relevant futures exchange. Futures exchanges themselves differ in the size of the contracts traded on them and the rules for making transactions.

Option currency contracts

Options transactions are fundamentally different from forward and futures transactions. The main characteristic of options is that the option holder is given a choice: to exercise the option at a pre-fixed price or to refuse to exercise it. Thus, the option holder has the right, not the obligation, to take a certain action; in options, the right to execute a transaction is sold, and a specific currency is acquired.

An option is a security that gives its owner the right to buy (sell) a certain amount of currency at a price fixed at the time of the transaction at a certain point in the future. When making an option transaction, the option seller (option writer) and its buyer (option holder) take part. An option holder acquires the right to buy or sell a specified asset in the future at a price fixed at the time of the transaction. The option writer undertakes to buy (or sell) the asset underlying the option trade at a predetermined price.

Since the risk of losses of the option writer associated with a change in the exchange rate is much higher than that of the option holder, the option holder pays a premium to the option writer at the time of the transaction as a payment for the risk. The premium is not returned to the option holder even if he refuses to exercise the rights under the option. In this case, the term of the option is understood as the moment of time after which the buyer of the option loses the right to buy (sell) the currency, and the seller of the option is released from his obligations under the terms of the contract. Under the basic cost is understood the price for which the buyer of the option has the right to buy (sell) the currency in the event of the contract being exercised. The base value is determined at the time of the conclusion of the contract and remains constant until the expiration of the transaction. The option premium is sum of money that the buyer of the option pays to purchase the option. At the heart of the conclusion of option transactions is the fluctuation of the exchange rate of the underlying asset. Market participants differently assess the direction and rate of change in exchange rates under this contract. From the difference in their ideas about the future price of the currency, the possibility of using these contracts arises. Determining the size of the premium is a difficult task. The premium must be high enough to convince the seller of the option to take the risk of loss, and low enough to interest the buyer in a good chance of making a profit. The amount of the premium is determined by the action of factors such as:

• a) the intrinsic value of an option is the profit that its owner could receive if exercised immediately;
• b) option term - the term for which the option contract is concluded;
• c) mobility of currencies - the size of fluctuations of the considered currencies in the past and in the future;
• d) interest costs - changes in interest rates in the currency in which the premium is to be paid.

Currency options are mainly traded on exchanges. At the same time, this segment of the exchange market is characterized by constant changes and differences in the methods of making transactions on various exchanges. However, all options markets have common features such as the standardization of contracts and the existence of a daily "no debt" settlement system. Less common are the so-called retail options, which are offered by large commercial banks to their clients. An option contract is concluded on the basis of a special agreement between the client and the bank, while clients can receive non-standard conditions in the course of negotiations with a corresponding change in the option exercise price and premium. Options are divided into call options or call options and put options or put options. A call option gives the holder the right to buy a certain asset in the future at a price fixed at the present time. A put option, respectively, gives the right to sell the currency under the same conditions. There are also European options - options that can only be exercised on the expiration date of the contract, and American options that give the right to buy or sell the underlying asset at any time before the expiration date of the contract. Since, in the case of American options, the seller bears more than high risk, they usually pay a higher premium than for European options. IN European countries and in Russia mainly European options are used. When working with options, its participant can act both as a writer (either a seller's option or a buyer's option), and as a holder of a certain type of option. In any case, the main idea of ​​this transaction is to profit from fluctuations in exchange rates. At the same time, both the writer of the seller's option and the holder of the buyer's option are counting on an increase in the price of the underlying asset; in the depreciation of the underlying asset by the time the contract is exercised, the writer of the buyer's option and the holder of the seller's option are interested, respectively. Unlike forwards and futures contracts, currency options provide an opportunity to limit the risk associated with the unfavorable development of exchange rates, while maintaining the chances of making a profit in the event of a favorable development. That is why options, being a relatively new instrument of the foreign exchange market, have become so widespread on all stock exchanges.

Currency arbitrage: types and technique of implementation

As applied to foreign exchange markets, the law of one price is formulated as follows: the rate of any currency is approximately the same in all countries. The deviation of the exchange rate in various currency markets is determined by the amount of operating costs associated with the transfer of this currency from one currency market to another. Thus, the dollar exchange rate in New York differs from the dollar exchange rate in Tokyo by the amount of transaction costs associated with transferring the dollar from New York to Tokyo. If the exchange rates differ by an amount greater than the amount of operating expenses, there is a possibility of playing on exchange rate differences, which is called currency arbitrage. Currency arbitrage is a transaction with currencies, which consists in the simultaneous opening of opposite positions of the same (or different) terms in one or more interconnected financial markets in order to obtain a guaranteed profit due to the difference in quotes. Arbitrage operations in percentage terms are small, therefore, only big deals. They are carried out mainly by financial institutions.

The basic principle of arbitrage is to buy any financial asset cheaper and sell it at a higher price. A necessary condition for arbitrage transactions is the free flow of capital between different market segments (free convertibility of currencies, absence of currency restrictions, absence of restrictions on the implementation of certain types of activities for various types of agents, etc.). The prerequisite for the transactions under consideration is the mismatch of quotes financial assets in time and space under the influence of market forces. There are temporary currency and spatial currency arbitrage. In addition, each of them is divided into simple and complex (or cross-course, tripartite). Simple arbitrage is performed with two currencies, and cross-rate arbitrage - with three or more currencies. Local, or spatial, arbitrage involves generating income due to the difference in exchange rates in two different markets. The opportunity for local arbitrage exists if the buying rate of a currency in any bank exceeds the selling rate in another bank. Complex arbitrage occurs when the calculated cross rate between two currencies differs from the actual quoted rate by any bank or market. Temporary arbitrage is a transaction for the purpose of profiting from the difference in exchange rates over time. Arbitrage operations are the main ones in the work of commercial bank dealers. Often, the opportunity for arbitrage transactions arises only for a few minutes, therefore, the bank's profit on each specific day largely depends on the dealer's ability to instantly evaluate and calculate the arbitrage operation. Arbitrage transactions are complex and require a good view of the market, so dealers specialize in transactions with a certain number of currencies.

Arbitrage transactions also have a large economic importance for the entire financial market. Because arbitrage is based on capitalizing on differences between markets or within the same market between contract terms, arbitrageurs intervene to ensure that rates are interconnected and the market is regulated. Unlike speculation and hedging, arbitrage promotes short-term alignment of rates in various markets and smooths out sharp market fluctuations, increasing market stability. Another operation that is often used by large participants in the foreign exchange market is speculation - an activity aimed at making a profit due to the difference in the rates of financial instruments over time. The success of speculation depends on the accuracy of forecasts, since the implementation of a speculative strategy requires its participant to buy foreign exchange instruments when prices are expected to rise and sell when they are expected to fall, making the best use of the leverage effect created by the security deposit and the volatility of quotes. Speculative operations significantly increase the liquidity of the futures market. About 60% of all transactions are concluded in the hope of speculative profit in the derivatives market. This allows you to carry out large-scale operations. In addition, speculation creates a fundamental opportunity for hedging, since the speculator deliberately takes on the risk of changes in the prices of financial assets, which hedgers pass on to him, for a fee. Thus, hedging is impossible without speculation.

Urgent currency transactions (forward, futures) - these are currency transactions in which the parties agree on the delivery of a conditional amount of foreign currency after a certain period after the conclusion of the transaction at the rate fixed at the time of its conclusion. From this definition, two features of urgent currency transactions.

1. There is a time interval between the moment of concluding and executing a transaction. Prior to the First World War, futures transactions were usually concluded on the terms of the delivery of currency in the middle or end calendar month("medio" and "ultimo"). IN modern conditions the term for the execution of the transaction, i.e., the delivery of the currency, is defined as the end of the period from the date of the conclusion of the transaction (term 1-2 weeks, 1, 2, 3, 6, 12 months and up to 5 years) or any other period within the term.

2. The exchange rate for an urgent currency transaction is fixed at the time of the conclusion of the transaction, although it is executed after a certain period.

The exchange rate for futures transactions differs from the exchange rate for spot transactions. Although the direction of the dynamics of rates for cash and forward transactions usually coincides, this does not exclude a certain autonomy of changes in rates for futures transactions, especially during periods of crises or speculative transactions with certain currencies. The difference between the exchange rates for "spot" and "forward" transactions is defined as a discount (discount - dis or deport - D) from the "spot" rate, when the rate of a futures transaction is lower, or a premium (RT or report - R), if it is higher . Premium means that the currency is quoted more expensively on a term transaction than on cash transaction. For example, if exchange rate"forward" (110 USD) - higher than the "spot" rate (100 USD), the premium is 10 USD per unit of another currency (10%). The discount indicates that the exchange rate of the forward transaction is lower than that of the cash transaction.

In general, the size of the discount or premium is relatively more stable than the spot rate. Therefore, when quoting the rate of a forward transaction in the interbank market, only a premium or a discount is often determined, which, in a direct quotation, are respectively added to the spot rate or subtracted from it. In an indirect currency quote, the discount is added and the premium is subtracted from the spot rate.

Exchange rates for futures transactions quoted in digital terms (and not by the premium and discount method) are called outright courses. The difference between the rates of the seller and the buyer, i.e., the margin, for futures transactions is greater than for spot transactions. The margin on futures transactions for 1-6 months is usually 1/8-1/4% per annum of the spot rate in terms of the transaction period, and on transactions for a year or more it reaches 1/2% per annum or more.

The quotation of currencies for futures transactions using the premium or discount method depends both on the predicted exchange rate dynamics in the period from the conclusion to the execution of the transaction, and on the difference in interest rates on term deposits in these currencies. In certain periods, one or the other factor predominates. IN normal conditions the difference between the spot rate and the forward rate is determined by the capitalized difference in interest rates on deposits in the currencies involved in the transaction. However, during a period of sharp speculative pressure on the currency, its exchange rate for futures transactions may break away from the spot rate. An increase in discount or premium causes a sharp increase in deposit rates in the currency that is the object of speculation for a decrease (in the foreign exchange market, this is accompanied by an increase in demand for such currency to be sold on a spot basis).

The influence of interest rates on the exchange rate is determined by the fact that in order to acquire the necessary currency, one should take a loan or withdraw the amount from the deposit, paying interest on the loan or losing interest on the deposit. At the same time, placing the purchased currency on a deposit brings interest (see Krasavina).

The market for futures currency transactions is narrower than the market for cash transactions. Basically, futures transactions are carried out with leading currencies. Forward transactions are concluded, as a rule, for a period of 1 week to 6 months. Transactions for periods longer than 6 months may be difficult, and transactions for periods longer than 12 months often require special arrangements. Banks, carrying out urgent foreign exchange transactions with the clientele, may require a deposit in the amount of a certain percentage of the transaction amount. Such a deposit is a guarantee for the bank against losses on the exchange rates, if, at the time of the transaction, the client is not able to deposit the amount of the sold currency.

Forward transactions with foreign currency are made in following purposes:

Currency conversion (exchange) for commercial purposes, advance sale foreign exchange earnings or the purchase of foreign currency for future payments to hedge currency risk;

Insurance of portfolio or direct investments abroad against losses due to a possible depreciation of the currency in which they were made;

Receiving speculative profit due to exchange rate differences;

Extraction of arbitrage profit.

The division of urgent currency transactions into conversion, insurance and speculative ones is largely conditional. Almost in each of them there is an element of speculation. Forward currency transactions are often not related to foreign trade or production activities monopolies and are carried out solely in pursuit of profit based on the difference in exchange rates in time - on the day the transaction is concluded and executed.

Among futures transactions of a speculative nature with foreign currency, there is a game for a fall and a game for an increase in the exchange rate. If a fall in the exchange rate is expected, "depressors" sell it at the current this moment forward rate in order to deliver this currency to buyers after a certain period of time, which, in the event of favorable exchange rate dynamics, they will be able to buy cheaply on the market, thus receiving a profit in the form of exchange rate differences. If an increase in the exchange rate is expected, "increasers" buy up the currency for a period in the hope that when it occurs, they will receive it from the seller at the rate fixed at the time of the transaction and sell this currency at a higher rate. Such deals are usually made on a massive scale in anticipation of an official devaluation or revaluation.

If a sharp jump in the exchange rate is expected, the imbalance of supply and demand for it will in any case be caused by normal risk-covering operations: the sale of proceeds and the absence of transactions to buy the currency that is expected to depreciate, hedging the risk of investments in this currency. Leads and delays (“leads and lags”) in foreign exchange settlements and foreign exchange transactions reach billions and cause enormous pressure on the exchange rate. Speculative foreign exchange transactions can amplify such impacts many times over. The game of raising and lowering the exchange rate disorganizes the foreign exchange market, disrupts the balance between supply and demand for currency, and negatively affects the monetary and economic situation of the respective countries and the world monetary system.

Speculative transactions can be made without the presence of currency. A currency speculator sells a currency for a period of time in the hope of getting a difference in rates. Sometimes currency transactions for the purpose of speculation are carried out on a spot basis: a bank, having received a loan in a currency that is threatened by devaluation, immediately sells it in the expectation that when the loan falls due, it will pay the lender at a more favorable rate for him . However, in its pure form, such transactions are few.

Varieties urgent operations there are forward and futures transactions, options, swap transactions and numerous combinations arising from them. At the same time, forward and swap operations are mainly carried out by commercial banks, while options and futures are traded on the exchange segment of the foreign exchange market.

Forward transactions

Forward transactions(forward foreign exchange contracts) are binding agreements between the bank and customers to buy or sell on a certain day in the future a certain amount of foreign currency. In this case, the currency, amount, exchange rate and payment date are fixed at the time of the transaction.

Forward operations(forward operation or abbreviated - fwd) - these are currency exchange transactions at a pre-agreed rate, which are concluded today, but the value date is postponed for a certain period in the future. In this case, the currency, amount, exchange rate and payment date are fixed at the time of the transaction. The term of forward transactions ranges from 3 days to 5 years, but the most common dates are 1, 3, 6 and 12 months from the date of the transaction.

The forward contract is bank contract, so it is not standardized and can be tailored to a specific operation.

The forward rate is the agreed rate at which currencies are exchanged at some point in the future.

The forward rate is the sum of the spot rate at the time of the transaction and the premium or discount, i.e. surcharges or discounts depending on the interest rates of the interbank market for a given period.

Forward currency may be sold at a forward premium or discount.

The forward premium is formed when the forward rate exceeds the real rate.

A forward discount is formed if the real exchange rate exceeds the forward one:

FD (discount or premium) = FR - SR/SR x 100% x 360/t.

Premiums and discounts are recalculated on an annual basis in order to compare the return on investing foreign currency in a forward transaction with the return on investing in money market instruments.

There are two main methods for quoting the forward rate:

Outright method - a quotation method in which banks indicate for the client both the full SPOT rate and the full forward rate, as well as the term and amount of the currency;

Swap rate method - a quotation method in which only a premium or a discount is determined, which, in a direct quotation, are respectively added to or subtracted from the SPOT rate.

When concluding a forward contract, the market operator's currency risk increases significantly, as the probability of an unpredictable change in the exchange rate on the date of delivery and the risk of the partner's insolvency increase. Thus, the bank bears the risk associated with closing the position, for this the client must have some funds to conclude a transaction - an account balance or a credit line to cover this risk.

Currency futures

Currency futures- these are standard contracts that provide for the purchase (sale) of a certain amount of one currency for another at a fixed rate at the time of the conclusion of the contract when the delivery date under the contract comes. In this case, the futures price is quoted in the number of units of one currency given for a unit of another currency. Each minimum point of change in the exchange rate (“tic”) is assigned a certain amount of money - a “multiplier”, so that the value of the change in the futures position is calculated as the product of the multiplier and the number of ticks. The position under the contract, if it was not liquidated before the expiration of the contract trading period, is closed by accepting (implementing) the delivery of the currency.

Futures deals(as well as forward) is carried out by the supply of currency for a period of more than 3 days from the date of conclusion of the contract, and at the same time the price of the transaction in the future is fixed on the day of its conclusion.

Since the 1970s, with the transition to floating exchange rates, currency futures. This is an agreement that means an obligation (and not the right to choose, unlike an option) to sell or buy a standard amount of a certain currency on a certain date (in the future) at a rate that is predetermined at the time of the transaction. In standard contracts, all conditions are regulated: amount, term, security deposit, method of calculation.

The forerunners of currency futures were futures commodity contracts, starting from the period of mercantilism, in order to protect against price fluctuations. In the 17th century they were practiced in the tulip bulb market, from the middle of the 19th century. - in the wheat markets. IN late XIX- early XX century. for these purposes, exchanges were created in London, Chicago. In 1865 Chicago commodity exchange introduced trading in futures contracts for grain trading. After World War II, standard model agreements were introduced for other commodities (copper, aluminium, lead, etc.), securities, and currencies.

The leading exchanges for trading futures contracts are now the Chicago Mercantile Exchange (CME), New York (COMEX), London (LIFFE), Singapore (SIMEX), Zurich (SOFFEX), Paris (MATIF). Since April 1998, at the Chicago Mercantile Exchange (CME), with the technological support of the MICEX, ruble futures contracts (nominal value of 500 thousand rubles, a period of six months) began to be concluded for the first time. The exchange rate of the ruble against the dollar, which is formed on the MICEX, is used to assess the trading positions of participants in mutual offsets. Physically, rubles are not exported. The one who predicts the exchange rate correctly wins. Futures trading is carried out through a clearing house (clearing house), which is a seller for each buyer and a buyer for the seller. This simplifies trading: some transactions cover others. When concluding a transaction, the buyer and seller are obliged to reserve the initial margin on a special deposit, which is reviewed daily and ranges from 0.04 to 6% of the nominal contract price. Daily profits and losses (margin changes) are paid in cash.

Thus, the buyer of a currency futures undertakes to buy, and the seller - to sell a lot of currency within a certain period at the rate agreed upon at the conclusion of the transaction. The type of contract is determined by the volume of the lot of currency and the month of the transaction. Futures transactions are characterized by guarantee deposits in case of default by sellers and buyers of their obligations.

Consequently, participants open currency positions. The deposit is returned after the fulfillment of obligations or at the conclusion of the opposite transaction (counter transaction), which means the position is closed. The number of open positions of each currency futures participant is equal to the absolute value of the difference between the number of contracts sold and bought by him.

The efficiency of a futures deal is determined by the margin adjusted after the working session for each deal.

M \u003d pK (C - St),

where M - margin (positive or negative);

R = 1 when selling; p = - 1 when buying a currency;

K - the number of contracts;

C - exchange rate on the day of the transaction;

St - the quotation rate of the currency of the current working session (on the day of the transaction execution).

The seller of a currency futures wins if, at the time of the transaction, he sells more expensive (C) than the quotation rate (St) on the day of its execution, and suffers losses if the rate of the day of the conclusion of the transaction is lower than the rate of the day of its execution. For each open transaction, even if its participant did not make transactions in the current working session, the margin is accrued

M \u003d p (Cp - St),

where Сп is the quotation rate of the previous working session.

In 95 cases out of 100, futures transactions end with the conclusion of an offset (reverse) transaction, while the actual supply of currency is not carried out, and the participants in this operation receive only the difference between the contract price on the day of conclusion and on the day of execution. Futures transactions are cheaper than forward ones due to the fact that they are standardized and, therefore, the spread for these transactions is smaller.

Futures contracts are traded on the stock exchange. The client must deposit in clearing house the exchange's initial margin, the minimum level of which it reassesses daily in accordance with the current market prices for contracts.

Currency futures are similar to forward transactions in the interbank market, but have differences (table).

COMPARATIVE CHARACTERISTICS OF THE FUTURES AND FORWARD MARKETS

Comparison criterion	futures market	forward market
Members	Banks, corporations, individual investors, speculators	Banks and large corporations. Limited access for small firms and individual investors
Communication Method	Participants in the transaction usually do not know each other	One counterparty of the transaction knows the other
Intermediaries	Participants in the transaction act through brokers	Typically, the participants in the transaction deal with each other
Place and method of transaction	In the operating room of the exchanges by the method of gestures and shouts	On the interbank foreign exchange market by phone or telex
The nature of the market and the number of currency quotes	One-sided market: the participants in the transaction are either buyers or sellers of the contract, and one exchange rate (buyer or seller) is quoted accordingly	Bilateral market and quotation of two exchange rates (buyer and seller)
Special deposit	To cover currency risk, participants are required to make a security deposit to a clearing house (settlement house)	A security deposit is not required if the transaction is between banks without intermediaries
Transaction amount	Standard contract (e.g. £25,000, $100,000, Mark 120,000, 12.5 million yen)	Any amount by agreement of the participants
Supply of currency	In fact, for a small number of contracts (1% - 6% of transactions)	For most contracts (95%)
Currency position	All currency positions (short and long) can be easily liquidated	Closing or transferring forward positions cannot be easily done

The disadvantage of futures is that if standard amount futures contract is not equal to the amount to be hedged, then the difference must be either unclosed or hedged in the money market.

Hedging - specific transactions, the purpose of which is to avoid losses from adverse changes in the exchange rate.

The main exchanges on which these contracts are traded are the Chicago Mercantile Exchange, the Philadelphia trading exchange, European Options Exchange.

Currency Options

3. Options trades- these are transactions in the foreign exchange market, in which the holder of an option (an option foreign exchange contract) is given a choice - to realize the option at a pre-fixed price or refuse to exercise it. The holder of an option has the right, not the obligation, to take a certain action; in options, the right to execute a transaction is sold, and a specific currency is acquired. Options are primarily traded on exchanges.

Options are divided into:

Buyer options - options that give its owner the right to buy a certain asset in the future, at a price fixed at the present time;

Seller options are options that entitle its holder to sell a currency on the same terms.

There are also:

European options that can only be exercised on the expiration date of the contract;

American options, which give the right to buy or sell the underlying asset at any time before the expiration date of the contract. They usually pay a higher premium.

The main task of an option transaction is to profit from fluctuations in exchange rates. At the same time, the writer of the seller's option (seller) and the holder of the buyer's option count on the increase in the price of the underlying asset. The buyer's option writer and the seller's option holder, respectively, are interested in the depreciation of the underlying asset by the time the contract is realized.

Option(from lat. optio, optionis - choice) with a currency - an agreement that, subject to the payment of the established commission (premium), provides one of the parties in the sale and purchase transaction with the right to choose (but not the obligation) or buy (call transaction - call- buy option), or sell (put deal - put option of the seller) a certain amount of a certain currency at the rate set at the conclusion of the transaction before the expiration of the agreed period (on any day - an American option; on a certain date once a month - a European option) .

Option transactions contain a lot of risk for the bank, so it sets less favorable exchange rate for client. The amount of the commission on the option is determined taking into account the exchange rate (object of the transaction) for the futures transaction as of the end date of the option contract. With certain deviations, the difference between the commission on the seller's and the buyer's option tends to be the difference between the forward rate and the strike rate of the option contract. Depending on the nature and terms of the option contract, the amount of commissions on "call" and "put" operations is quite clearly defined in relation to each other and jointly limited by the forward exchange rate. Option transactions are profitable when exchange rate fluctuations exceed the commission. Option transactions with currency are inferior to other currency transactions in terms of volume, number of participating banks and currencies. Basically, a currency option is used to insure currency risk. Used to insure foreign exchange risk operation straddle - a combination of a call option and a put option on the same currency (or security) with the same exchange rate and expiration date. This operation enables the trader to respond to exchange rate changes in the market, covering (or blocking) losses with profit from the opposite pair operation in the straddle. Also practiced index option, giving the right to buy or sell a certain part of the index - an indicator of the exchange rate or securities - at a predetermined price and on a certain date. Indices are usually determined by the base period of its introduction. Options are traded not only on the interbank market, but also on stock and commodity exchanges.

Currency option contracts are traded by: the world's largest Chicago Board Options Exchange, the European Options Exchange in Amsterdam - EOE (European Options Exchange), the Austrian Futures Exchange in Vienna - OSTOV (Oesterreichische Termin Optionsboerse).

SWAP transactions

SWOP transactions (SWOP contracts) are a combination of SPOT and forward transactions. This is a currency transaction that combines the purchase and sale of two currencies on the terms of immediate delivery with a simultaneous counter-transaction for a certain period with the same currencies.

For swap transactions, the cash transaction is carried out at the spot rate, which in the counter transaction (terms) is adjusted to take into account the premium or discount, depending on the exchange rate dynamics. At the same time, the client saves on margin - the difference between the rates of the seller and the buyer for a cash transaction. Swap operations are convenient for banks: they do not create open position(the purchase is covered by the sale), temporarily provide the necessary currency without the risk associated with a change in its exchange rate. Swap operations are used to:

Making commercial transactions: the bank sells foreign currency on the terms of immediate delivery and at the same time buys it for a period. For example, a commercial bank, having excess dollars for a period of 6 months, sells them for the national currency on a spot basis. At the same time, taking into account the need for dollars in 6 months, the bank buys them at the forward rate. In this case, a loss on the exchange rate difference is possible, but in the end the bank makes a profit by lending the national currency;

Acquisition by the bank of the necessary currency without currency risk (on the basis of coverage by a counter-deal) to ensure international settlements, diversification of foreign exchange holdings;

Mutual interbank lending in two currencies.

If a customer requests loans in a certain currency (for example, Swiss francs) and the bank has resources in another currency (dollars), it can meet loan application, exchange dollars for Swiss francs through a swap operation.

Swap transactions are usually carried out for a period of 1 day to 6 months.

The main differences between term currency transactions and cash transactions

1. The rate of futures transactions usually differs from the rate of SPOT transactions by the amount of a premium or discount, i.e. a discount or premium to the existing SPOT rate.

2. The spread between the buying or selling rate of a currency for a period is usually higher than in SPOT transactions, which is explained by more high level risk.

Swap transactions are carried out both between commercial banks, international economic organizations, and between commercial banks, international institutions and the central bank of the country, and directly between the central banks of countries. In the latter case, they are mutual lending agreements in national currencies. Since 1969, there has been a multilateral system of mutual exchange of currencies through the Bank for International Settlements in Basel based on the use of swap transactions, which is used by the central banks of countries to carry out effective foreign exchange interventions.

In the 1960s and 1970s, when foreign exchange intervention was widely used during the crisis of the Bretton Woods system, swap operations were widely used by central banks. developed countries for temporary reinforcement of their reserves in foreign currency. Swap transactions were made over the phone within the limit of mutual loans in national currencies established by the interbank agreement for a period of 3-6 months, which was often extended.

The essence of the "swap" transaction between central banks is as follows. Federal reserve bank New York, by agreement, for example, with the German Federal Bank, sells US dollars to it on the terms of immediate delivery (writes dollars into the account of this bank), and the German Federal Bank credits the equivalent of this amount in German marks to the bank account of New York. Thus, the United States receives a loan, creates a reserve in foreign currency, using it for foreign exchange intervention or foreign exchange diversification. At the same time, the Federal Reserve Bank of New York enters into a forward transaction with the German Federal Bank and when it expires, buys dollars for stamps from the central bank of the Federal Republic of Germany. The United States actively used "swap" transactions in order to support the dollar when its exchange rate fell in the 70s. Since the 1980s, swap operations between central banks have ceased to be carried out. However, commercial banks raise and place funds on the interbank short-term market by entering into swap transactions.

Swap operations are performed not only with currencies, but also with interest. The essence of this interest transaction is that one party undertakes to pay interest to the other at the rate of LIBOR in exchange for receiving interest at a fixed rate in order to profit from the difference between them. At the same time, a party that has medium-term investments at a fixed interest rate, but short-term liabilities or liabilities at a revised interest rate, insures its interest rate risk (interest position) by “buying” a long-term fixed rate or vice versa. Interest rate swaps can also be purely speculative. In this case, the party that has not made a mistake in predicting the dynamics of market interest rates wins. Sometimes currency and interest swaps are combined, with one party paying floating rate interest in US dollars in exchange for receiving fixed interest payments in German marks. In practice, the listed swap operations are carried out in various combinations.

Documentation for swap transactions is relatively standardized, including conditions for terminating swaps in the event of default, the technique for exchanging obligations, as well as the usual clauses loan agreement. They make it possible to receive the necessary currency, compensate for the temporary outflow of capital from the country, regulate the structure of foreign exchange reserves, including official ones.

In the form of a "swap" transaction, banks exchange currencies, loans, deposits, interest rates, securities or other valuables. Since the 1980s, an active swap market has developed and is growing rapidly, especially interest rate swaps, which in the early 1990s (over $3 trillion) were almost three times the volume of currency swaps. Banks manage their swap portfolio fearing a knock-on effect as interest rate and currency risk builds up (domino theory). These operations are concentrated in the largest banks. Created International Association dealers - "swap".

“Swap” operations are carried out with gold in order, while retaining ownership of it, to acquire the necessary foreign currency for a certain period.

Arbitrage deals

Receiving profit associated with the presence of an open position on different currencies or in different markets, is called arbitration.

Arbitration is a broad concept. Arbitrage differs with goods, securities, currencies. In its historical meaning currency arbitrage - a currency transaction that combines the purchase (sale) of a currency with the subsequent completion of a counter-transaction in order to make a profit due to the difference in exchange rates in different currency markets (spatial arbitrage) or due to exchange rate fluctuations over a certain period (temporary arbitrage).

Necessary condition: the difference between prices (spread) must be greater than foreign exchange costs.

The basic principle of currency arbitrage is to buy a currency cheaper and sell it more expensive. There are simple currency arbitrage, carried out with two currencies, and complex (with three or more currencies); on the terms of cash and futures transactions.

As the monetary and global monetary system the forms of currency arbitrage have changed. Under the gold standard, currency arbitrage was practiced, based on the difference in rates: bills, gold, various loan funds payment, currencies in different currency markets (spatial). From the 30s of the XX century. gold arbitrage lost its importance due to the abolition of the gold standard, and spatial currency arbitrage was actively used, since, with insufficiently fast and reliable communication between the currency markets, the difference in the dynamics of exchange rates persisted. With spatial currency arbitrage (unlike temporary), a closed currency position is created: since the purchase and sale of currency in different markets are carried out simultaneously, there is no currency risk. In modern conditions, with the development of electronic means of communication and information, the expansion of the volume of foreign exchange transactions, exchange rate differences in individual foreign exchange markets began to occur less often, and as a result, spatial currency arbitrage has given way mainly to temporary currency arbitrage (with the exception of Russia).

Depending on the purpose, speculative and conversion currency arbitrage is distinguished. Speculative arbitrage aims to take advantage of the difference in exchange rates due to their fluctuations. At the same time, the initial and final currencies are the same, i.e. the transaction is carried out according to the scheme: German mark - US dollar; dollar - mark. Conversion arbitrage primarily aims to buy the most profitable required currency. In fact, this is the use of competitive quotations of various banks in one or different currency markets. Its possibilities are wider, since the difference in rates may not be as large as in speculative arbitrage, in which it should not only cover the margin between the rates of the buyer and seller, but also make a profit. In modern conditions, exchange rates in different currency markets rarely deviate by an amount equal to or greater than the difference between the rates of the seller and the buyer, which makes it possible to practice only conversion arbitrage in space: the bank acquires the necessary currency in the currency market where it is cheaper. Modern electronic means of information (Reuters-monitor, Telerate) allow you to follow all changes in quotes on the leading foreign exchange markets. Communication overheads have been relatively reduced and do not play a significant role in the conditions of the increased minimum transaction volume (from $5 million or more).

Since the 70s, in the conditions of floating exchange rates, the most common currency arbitrage in time, based on the mismatch in the timing of the purchase and sale of currency. The need for it is due to the fact that big banks transactions in various currencies and for large amounts, it is not always advisable or even possible to cover them with counter-transactions in a single order. It is more profitable for banks, as bankers say, to “make a market”, that is, to carry out foreign exchange transactions based on their own quotes, attracting transactions in the opposite direction and winning at the same time on the margin between the rates of the seller and the buyer. Dealers and banks, market makers strive to carry out currency transactions that create the most favorable, from their point of view, ratio of purchases and sales of individual currencies. At the same time, they change their quotes accordingly, making them more attractive to possible clients, and if necessary, they themselves turn to other banks to carry out transactions of interest to them, including for the final regulation of their own foreign exchange position.

Thus, temporary arbitrage inevitably carries an element of speculation, since the dealer, depending on his forecast of a possible change in the exchange rate, chooses one or another policy to cover transactions in the near future, hoping to profit from them. If the dealer assumes that the dollar will soon rise, and the client offers him to sell dollars, the bank can limit the amount of the sale or immediately cover it with a counter-transaction by buying dollars, and if there is significant market volatility or uncertainty in the dynamics of rates, refuse to carry out the operation. If the client offers the bank to buy dollars, he can make a deal for a large amount, hoping to subsequently cover it at the expense of a counter-transaction and make a profit both on the margin between the bid and ask rates, and on the appreciation of the dollar that is beneficial for him.

The difference between currency arbitrage and ordinary currency speculation lies in the fact that the dealer focuses on the short-term nature of the operation and tries to predict rate fluctuations in a short period between transactions. Sometimes throughout the day, he repeatedly changes his tactics. To do this, the dealer must know the market well and be able to predict, constantly analyze the performance of other banks, maintain contacts with other dealers, monitor the movement of exchange rates and interest rates in order to determine the causes and direction of fluctuations in rates. The purpose of currency speculation is to maintain a long position in a currency that tends to rise for a long time, or a short position in a currency that is a candidate for depreciation. At the same time, targeted sales of the currency are often carried out in order to create an atmosphere of uncertainty and cause a massive dumping and depreciation of its exchange rate, or vice versa. IN speculative transactions banks, firms, TNCs participate. Large-scale currency speculation, aimed at depreciating or appreciating currencies, often includes transactions for tens of billions of dollars over several days. Often they are powerless to resist foreign exchange interventions central banks, although they can be made for several billion dollars a day. Currency speculators are often not interested in whether rates correspond to real ratios purchasing power money, whether currencies can be kept at the level that will develop as a result of these transactions. Currency is for them the same commodity as stocks, metals, raw materials. Its characteristics are profitability ( interest rate) and the prospect of price (rate) changes in the short term without taking into account long-term prospects.

Currency arbitrage is often associated with operations in the loan capital market. The owner of any currency can place it on the loan capital market in another currency at a more favorable interest rate, i.e., make interest arbitrage, which is based on the use by banks of differences between interest rates in different loan capital markets. The ultimate goal of the owner of the currency is to earn a higher profit than the bank could get by investing it directly without exchanging it for another currency. Depending on his assessment of the dynamics of the rates of these two currencies, he may not insure the currency risk or temporarily carry out a hedging operation on the most favorable terms. Interest arbitrage includes two transactions: obtaining a loan in the foreign loan capital market, where the rates are lower; using the equivalent of borrowed foreign currency in the national capital market, where interest rates are higher.

Of great importance in the creation and hedging of currency positions within the framework of interest arbitrage is, as noted, option transactions that allow you to fix the income already received on the difference in percentage, while at the same time insuring against its loss in case of unforeseen development of exchange rates. A variation of this operation is currency interest arbitrage, based on the use by the bank of interest rate differences on transactions carried out for different periods. For example, if the premium for a forward transaction for 6 months in terms of interest is 6% per annum, and for a transaction for 3 months - 4%, the arbitrageur can sell the currency for a period of 6 months with a premium of 6% per annum and buy it for a period of 3 months, paying a premium of 4% per annum.

Lecture 7 International settlements

1 The concept and essence of international settlements

2 Assessment of the conditions for international settlements

3 Main forms of international settlements

4 Currency clearing

Currency transactions occupy one of the most important positions in settlement transactions. They mean the issuance of loans, various contracts for the purchase and sale of goods, settlements made in foreign currency.

Foreign exchange operations most often mean operations related to the purchase and sale of foreign currency, its use as a means of payment, payment of foreign economic obligations with the national currency, forwarding, export and import currency values from other countries.

IN currency relations there is a division of operations depending on who conducted them - residents or non-residents of the country.

Foreign exchange transactions and foreign exchange transactions occur in the following cases:

1. When transferring Money physical or legal entities from one currency to another.
2. When used as a means of payment of currency values ​​in international circulation.
3. When transporting, sending or importing currency values ​​from one country to another or within one state.

Classification of foreign exchange transactions

The exchange rate is the difference in the value of two mutually convertible currencies.

Exchange rates may vary by type and have their own classification:

• Fixed rate. Established by law. The Central Bank is in charge of its definition: no other financial institutions working in the country, do not have the right to change predetermined courses currencies.
• floating rate. It is set during the transaction on the foreign exchange market, that is, during trading on the stock exchange. A feature of this course is that it changes almost every second. Transition state economy to a floating exchange rate from a fixed one entails negative consequences in the form of inflation, which can change within one day.
• The current rate at which a certain transaction is concluded. Often by current exchange rate additional currency transactions may be concluded within two days, while fluctuations in the floating and fixed rates will not have any effect.
• forward rate. It gives you the opportunity to earn on foreign exchange transactions. By prisoner financial contract they are calculated at the forward rate after a certain time.

The forward rate eventually turned into a futures contract, on the basis of which option transactions began to appear - types of foreign exchange transactions. When concluding such a transaction, two parties are involved: the buyer and the seller. The buyer, after acquiring the option, can sell it at any set value, while the seller or the owner of the option is obliged to redeem it in strictly deadlines. At the same time, changes in its value do not play any role. Each side of the transaction can both win and lose: the result depends on how the financial market behaves, and whether the price of the option rises or falls.

In spot foreign exchange transactions, two sales are carried out simultaneously. Currency is first bought and then sold. The parties participating in such an operation, according to its results, win on the margin.

Types of currency transactions

Different types of operations are carried out on the foreign exchange market, each of which has its own conditions, deadlines and is intended for specific purposes.

Currency transactions are divided into main and auxiliary. The main ones are aimed at buying and selling currency, while the auxiliary ones are used to insure the performer against possible risks.

Depending on what specific goals are faced by a participant in the foreign exchange market, the value of varieties of foreign exchange transactions also changes. Operations related to the purchase of currency at a strictly established rate make it possible to avoid the impact of inflation on the final result of activities. The peculiarities of transactions make it possible to use them as forms of international settlement when importing raw materials and goods.

Tod (TOD)

The simplest type of transactions in the foreign exchange market. It is calculated within one working day, while the buyer, making such a transaction, undertakes to urgently deliver the currency, and the seller immediately pays for it.

Tom (TOM)

This is a deferred currency transaction, the settlement of which is carried out the next day. In this case, the exchange agreement is concluded on the current day, while all settlements on it are carried out only on the next day.

Forward (FORWARD)

This type of foreign exchange transactions guarantees the importer protection against changes in the exchange rate. The forward contract has its advantages, one of which is the opportunity for an importer who has bought a large number of materials or raw materials, to exchange currency at a favorable rate even if the national currency depreciates. Thanks to this opportunity, the importer can beat his competitors without raising prices and getting the planned profit.

Swap (SWAP)

A kind of forward contract for the purchase of currency, but at the same time the sale and purchase are carried out simultaneously, but with different value dates. Currency transactions of this type are most common in Forex market, because they allow you to profit from the difference in exchange rates.

Futures

One of the types of forms of international settlements, which is an agreement under which the supply of currency is carried out by the parties within a strictly agreed time frame and in certain volumes. It can be used both for hedging risks and for conducting foreign exchange transactions for your own purposes.

Option

A type of foreign exchange transactions that give the buyer the right to purchase currency at a fixed cost and in the agreed volume, but he is not obliged to do so. The buyer can also terminate the transaction at will.

Factors affecting foreign exchange transactions

Quantity presented on international market currencies, as well as the prospects for changes in the exchange rate, depend on the factors on which they rely when choosing the type of currency transaction and its completion. These factors include:

1. Competition among dealers. It is evidence of the imperfection of the foreign exchange market. The foreign exchange market in the country is all the more competitive, the more developed foreign exchange transactions and relations in the country, respectively, the exchange rate is less influenced by individual economic agents. As a result, the discrepancies between exchange rates are minimal.
2. foreign trade relations. The supply of domestic currency is formed from the import of foreign services and goods. An increase in supply and a decrease in the exchange rate occurs with an increase in imports in the country. The growth of the exchange rate is accompanied by a decrease in imports and the supply of foreign currency.
3. International lending. An increase in demand for a certain currency is caused by an increase in loans in it. Foreign lending contributes to the depreciation of currencies and increase the supply of this currency.
4. Interest rates. The ratio of the spot rate to the forward rate is influenced by interest rates.
5. inflation rate. Used in calculating actual exchange rates.
6. interventions Central Bank. It influences the exchange rate for its change in a certain direction through the purchase and sale of currency. In the case of a weak currency, excess supply is absorbed to maintain the exchange rate. The strong currency is depreciating due to ongoing Central Bank from own reserves.
7. Change money supply. The government of the country, manipulating the money supply, can also influence the exchange rate and the ratio different types foreign exchange transactions and operations. An increase in the money supply leads to an increase in the supply of the currency, which lowers its exchange rate.

Urgent currency transactions

These are deals that are settled two days or more after they were made. The purchase and sale of foreign currency can be carried out with reference to a specific date. Such transactions are used for the following purposes:

• receiving speculative profit;
• insurance against exchange rate fluctuations;
• covering the risk faced in other cases;
• receiving arbitrage profit.

Futures transactions are divided into options, futures and forward transactions. The latter are engaged in commercial banks, while trading in futures and options is carried out within the foreign exchange market. A variety of forms of international payments. Can be used to pay for imports and exports of goods and services.

A forward is understood as a contract concluded for a certain time in the future and involving the purchase or sale of a currency. The buyer and seller of currency negotiate all the terms of this contract in advance. In fact, such transactions are a loan issued by the seller of the currency to the buyer for a certain period. If the buyer plans to pay the forward before the agreed time, then this desire is discussed by both parties. The forward contract is valid until the end of the specified period.

Futures - a contract under which its owner must pay a specified amount for a specified amount of foreign currency within a specified time period. The parties to the contract do not stipulate its terms: the client either acquires a futures contract or refuses it. To quickly get money for a contract, the owner can sell it on the futures market. Selling or buying futures in the secondary market will help one of the parties avoid fulfilling their obligations.

Options are contracts under which you can buy or sell a fixed amount of currency at a set price at a certain point in the future. The option is not necessarily exercised, but the company that issued it undertakes to pay a large premium - the difference between the intrinsic value of the option and its market price. This is done in order for the other party to sign such a contract.

When conducting foreign exchange transactions, the parties are required to issue a transaction passport. Currency control and the bodies that execute it monitor the implementation of all operations in the foreign exchange markets.

Futures foreign exchange transactions are foreign exchange transactions in which the parties agree on the delivery of a conditional amount of foreign currency after a certain period after the conclusion of the transaction at the rate fixed at the time of its conclusion. Two features of urgent currency transactions follow from this definition.

• 1. There is a time interval between the moment of concluding and executing a transaction. The term of the transaction, i.e., the supply of currency, is defined as the end of the period from the date of the transaction (term 1-2 weeks, 1, 2, 3, 6, 12 months and up to 5 years) or any other period within the term.
• 2. The exchange rate for an urgent currency transaction is fixed at the time of the conclusion of the transaction, although it is executed after a certain period. Consider the features of each of the forward currency transactions.

"Black market -- social institution shadow economy in terms of illegal circulation of goods and services on the market. significant hallmarks black market is the absence of direct state regulation and taxation, since the black market exists outside legal system specific society, violating the legal order that has developed in it. At the same time, regulation by international bodies and regional, national, subnational and local governments has an indirect effect on the black market.

Option (from Latin optio, options - choice) with a currency - an agreement that, subject to the payment of the established commission (premium), gives one of the parties in the sale and purchase transaction the right to choose (but not the obligation) or buy (call transaction) -- call-option of the buyer), or sell (transaction "put" -- put-option of the seller) a certain amount of a certain currency at the rate set at the conclusion of the transaction before the expiration of the agreed period (on any day - an American option; on a certain date once per month - European option).

Option transactions contain a lot of risk for the bank, so it sets a less favorable rate for the client. The amount of the commission on the option is determined taking into account the exchange rate (object of the transaction) for a futures transaction on the date of the end of the option contract. With certain deviations, the difference between the commission on the seller's and the buyer's option tends to be the difference between the Forward rate and the option contract execution rate

Depending on the nature and terms of the option contract, the amount of commissions on "call" and "put" transactions is quite clearly defined in relation to each other and jointly limited by the forward exchange rate. Option transactions are profitable when exchange rate fluctuations exceed the commission. Option transactions with currency are inferior to other currency transactions in terms of volume, number of participating banks and currencies. Basically, a currency option is used to insure currency risk. To insure currency risk, a straddle operation is used - a combination of a call option and a put option for the same currency (or security) with the same exchange rate and expiration date.

This operation enables the trader to respond to exchange rate changes in the market, covering (or blocking) losses with profit from the opposite pair in a "straddle" operation. An index option is also practiced, giving the right to buy or sell a certain part of the index - an indicator of the exchange rate or security-- at a predetermined price and on a specific date. Indices are usually determined by the base period of its maintenance. Options are traded not only on the interbank market, but also on exchanges - stock and commodity.

Options and futures are largely similar financial instruments, but have some fundamental differences.

Forwards is an agreement between the seller and the buyer on the sale and purchase of a specific product within a predetermined period. A forward contract is a firm deal, i.e. a transaction that is binding. Refusal of one of the counterparties from execution entails penalties. Forward contracts are concluded between trading and manufacturing companies.

The subject of the agreement can be various assets, such as stocks, bonds, currencies, etc. Forward contracts for the purchase and sale of currency between banks and their clients are common.

The content of the contract, i.e. the quantity of the supplied asset, its price depend on the agreement between the buyer of the contract. A forward contract is always individual, it is a contract with non-standard parameters, so there is practically no secondary market for it. If the person who has opened a forward position wishes to withdraw from it, he may do so only with the consent of his counterparty. It is also important that the conclusion of the contract does not require significant expenses from the counterparties (except for the overhead costs associated with the execution of the transaction, and commissions if the forward is concluded with the help of an intermediary).

Forward contracts are concluded, as a rule, for the actual sale or purchase of assets, including for the purpose of insuring a supplier or buyer against possible adverse price changes. However, this type of contract has disadvantages associated, firstly, with the difficulty of transferring obligations assumed to a third party, and secondly, with high probability failure to fulfill obligations by one of the counterparties in the event of sharp fluctuation product prices or in the event of a change financial position counterparty in the period before the execution of the contract.

A forward contract may be concluded for the purpose of playing on the difference in the market value of assets. A person who opens a long position expects the price of the underlying asset to rise, and a person who opens a short position expects it to fall. So, having received shares at the same price, the investor sells them on the spot market at a higher spot price (of course, if his calculations were made correctly and the asset price increased).

A forward contract for currency is a contract for the purchase (sale) of a certain amount of foreign currency at an exchange rate determined at the time of the conclusion of the transaction, in a specified period in the future. Exchange rate, fixed in the contract, is called the forward rate; it may differ from the spot exchange rate, i.e. from the primary course.

If the forward exchange rate exceeds the spot rate, then according to established practice, the currency is quoted at a premium; if the forward rate is lower than the spot rate, the currency is quoted at a discount. Forward contracts are common instruments for managing operational currency risks. Typically, banks enter into forward contracts for up to 1 year, but in Lately there has been a trend towards an increase in the term of forwards. Forward interest rate contracts, or future interest rate agreements, are credit or loan agreements with the conditional delivery of a certain amount of money in the future at an interest rate set at the time of the contract. Unlike currency forwards, interest rate forwards do not deliver money; in fact, FRA only fixes the interest rate.

Futures (futures contract) (from English futures) -- derivative financial instrument, a standard fixed-term exchange contract for the purchase and sale of the underlying asset, at the conclusion of which the parties (seller and buyer) agree only on the price level and delivery time. The remaining parameters of the asset (quantity, quality, packaging, labeling, etc.) are specified in advance in the specification of the exchange contract. The parties are liable to the exchange until the execution of the futures.

Futures can be thought of as a standardized version of a forward traded on an organized market with mutual settlements centralized within the exchange.

The main difference between forward and futures contracts is that a forward contract is a one-time OTC transaction between a seller and a buyer, while a futures contract is a recurring offer traded on an exchange.

LIDZ END LEGZ (leading and lagging) - a method of conducting foreign exchange transactions based on their artificial acceleration or delay in order to obtain financial benefits due to a possible change in the exchange rate or a method of conducting foreign economic, foreign exchange operations by entrepreneurs, firms, the essence of which is maneuvering, manipulation timing of cash settlements in order to obtain financial benefits.

These are transactions in which the parties agree on the delivery of a specified amount of currency after a certain period of time after the conclusion of the transaction at the rate fixed at the time of its conclusion.
From the definition made, two features of urgent currency transactions follow:
There is an interval in time between the moments of conclusion and execution
deals.
The exchange rate for an urgent currency transaction is fixed at the time of the conclusion of the transaction, although it is executed after a certain period of time.
Urgent currency transactions are made for the following purposes:
Insurance against possible losses on foreign trade operations (advance sale by the exporter of foreign exchange earnings or purchase by the importer of foreign currency for future payments).
Insurance of portfolio or direct investments abroad in connection with the possible depreciation of the currency in which they were made.
Receiving speculative profit due to exchange rate differences.
Urgent currency transactions are usually distinguished into forward and futures; they are similar in many ways, but they also have certain differences. Comparative characteristics of the forward and futures markets are given in Table. 10.1.
Table 10.1
Comparative characteristics of the futures and forward markets\r\nComparison criterion Futures market Forward market\r\nContracts Standard Individuals\r\nParticipants Banks, corporations, individual investors, speculators Banks and large companies. Limited access for small firms and individual investors\r\nMethod of communication Transaction participants usually do not know each other, communicating with the client through
69
clearing association One counterparty of the transaction knows the other; the agreement is concluded off-exchange\r\nPrice High commissions and insignificant price discrepancy Low commissions, the discrepancy between the purchase and sale price fluctuates\r\nPlace and method of transaction Futures contracts are traded on the exchange and are subject to regulation by the relevant exchange committees On the interbank foreign exchange market by phone or telex\r\nSpecial deposit To cover the risk, the participants in the transaction are required to make a security deposit, which requires withdrawal from circulation of funds that will not bring any profit during the entire hedging period Security deposit is not required if the transaction between banks is carried out without intermediaries\r\ nSettlement Daily On maturity\r\nDeal size Standard contract70 (e.g. USD 10,000, £25,000, DM 120,000) 1% to 6% of the total number of transactions) For most contracts executable\r\nOwnership As a rule, the result of the transaction is the receipt or payment of the difference between the purchased and selling price futures There is a transfer of ownership of the currency from the seller to the buyer\r\nDegree of liquidity High liquidity Low liquidity\r\nProbability
performance
contracts Insignificant probability of default by the opposite party of its obligations under the transaction Low probability of contract execution\r\nCompletion of the transaction Each transaction must be liquidated by a reverse (offset) transaction The transaction is considered completed after the exchange of currencies\r\nThe main instrument of an urgent, in particular, forward transaction is the forward rate - the contractual price of a foreign exchange product, linking the spot rate at the time of the transaction with the interest rate at bank deposits currencies exchanged,
on the ratio of which it (the forward rate) will obviously (with other equal conditions depend.
The calculation of the forward rate is based on the so-called interest rate parity: the investor must receive the same income from the placement of funds at interest without risk, both in national and foreign currencies.
Let us assume that the spot rate of the ruble against the dollar (direct quotation) is $1 = S rub., the risk-free interest rate on a ruble deposit is IRU6., and on a dollar deposit it is $1. The investor plans to place funds on deposit for time t. He has two options before him. First, place the amount S on a ruble deposit and receive funds at the end of the period t in the amount of:
f + L
t
S
rub.
1+i
rub.
V 3600
Secondly, convert the amount S, equivalent to one dollar, by placing this dollar at a rate of idollars. for period t, and upon its completion exchange f + \\
t
1 + I
dollars to rubles at some forward rate F.
360
Doll.
0
V
Both options should bring the investor the same result. Otherwise, there will be an opportunity to make an arbitrage (speculative) operation. Therefore, it can be written that
(+ L Ґ + L
t
t
1+i
S
-F
rub.
1+i
360
360
Doll.
0
V
S.
From here F -
1 + I py6.(t/360)
1 + І dollars (^360)
Example 10.1.
The ruble exchange rate is 50 rubles/dollar, the risk-free rate for six months on a ruble deposit is 8%, on a dollar deposit - 12%.
Determine the six-month forward rate of the ruble (dollar).
It is equal to F - 50 V360 (- 49 rubles / dollars.
ґ1801
v3600
1 + 0.08f180 1 + 0.12
V 360,
As for foreign exchange transactions under futures contracts, there are three categories of their participants: hedgers, speculators and arbitrageurs.
Hedgers seek to reduce the risks associated with foreign exchange transactions by insuring (hedging) the foreign exchange risk by creating counter claims and obligations in foreign currency. Below we will consider an example illustrating such a hedging procedure.
Speculators are the exact opposite of hedgers: while hedging means some action to reduce exchange risk, speculation involves deliberately taking on exchange risk for profit. For example, if a fall in the exchange rate is expected, bearish speculators begin to sell it at the currently existing term (forward or futures) rate in order to deliver this currency to buyers in the future by purchasing it in the spot market at a lower price. exchange rate, thus receiving a profit in the form of the corresponding exchange rate difference. If an appreciation is expected, speculators-bulls ("bulls") buy up the currency for a period in the hope of
upon its occurrence, receive it from the seller at the rate fixed at the time of the transaction, and sell this currency at a higher current spot rate.
The main difference between a currency arbitrageur and an ordinary currency speculator is that the arbitrageur focuses on the short-term nature of the operation, trying to predict the fluctuation of rates in a short period of time between transactions. This can be done, as a rule, with much less risk than in the case of a long-term foreign exchange contract. True, even in this case, the dealer must know the market very well and be able to predict the results of other banks' activities, observe the movement of exchange rates in order to determine changes in trends in their fluctuations.
One of the most traditional hedging instruments in various markets are undoubtedly forward agreements. In the international currency market, they are especially widely used. Let us illustrate the currency risk hedging mechanism with the help of a forward agreement using the simplest conditional example.
Suppose a Russian export company has entered into a contract to supply products to the United States total cost 1 mln USD. The spot exchange rate at the time of signing the agreement is 50 RUB/USD, while the forward rate for 6 months is 49 RUB/USD.
In accordance with the terms of the contract, the buyer is obliged to make payment for the delivered goods in the amount of $ 1 million six months after the signing of the agreement.
Let's imagine that the spot exchange rate in six months will be 45 RUR/USD.
The algorithm for hedging currency risk using a forward agreement can be as follows.
On the day the contract is signed with its US counterparty, the Russian firm enters into a forward agreement with commercial bank to sell him $1 million in six months at the rate of 49 rubles/$.
After six months, the Russian firm receives a $1 million payment from its US counterparty and sells the currency received in accordance with the forward agreement commercial bank at a predetermined rate. The income (revenue) of the company will amount to 49 million rubles.
Obviously, if the firm had not entered into such a forward agreement, in six months it would have received only 45 million rubles. (taking into account the new spot rate - 45 rubles / dollar). Thus, the forward agreement allowed the company to avoid losses in the amount of 4 million rubles.
A schematic diagram of hedging a currency transaction using a forward agreement is shown in Fig. 10.1.


With scaling up stock trading currencies as a hedging instrument are increasingly beginning to use futures. It should be noted that the essence of the hedging operation using a futures agreement practically does not differ from currency risk insurance using forward hedging. When choosing a financial manager of a transnational company, it is necessary to take into account the specific conditions and opportunities for futures or forward transactions, since at a certain time and at a certain time and under certain conditions, each of them can be profitable for the company.

More on the topic Forward currency transactions:

1. § 6. Exchange. - Organization of mediation on the exchange. - Brokers. - Quote. - Relations between the stock exchange and banks. - Exchange transactions.

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