Futures markets (hedging) - types of exchanges

Read the text and answer the questions:

1. What is a futures market?

2. What is a hedging operation?

3. What futures markets existed?

4. What new futures markets appeared?

5. What are the areas of financial hedging?

If just a decade ago there only existed different types of Commodity Exchanges (along with the Stock Exchange), now as the sphere of the application of hedging has broadened, there appeared new kinds of Exchanges, such as the London International Financial Futures Exchange (Liffe) and the Baltic International Freight Futures Exchange (Biffex) whose hedging operations grow from day to day not only in scope but in variety, too.

Existing Financial Hedging

One of the oldest exchanges which has a 184-year history istheLondon Stock Exchange which had been dealing until recently in stocks, shares and government securities, and to whose trading floor only its members were admitted. Nowadays the whole outlook of the Stock Exchange has altered. It is no longer a market place for insiders only, it opened its trading floor to non-members (outsiders) by launching the market's first foreign currency futures contracts - the dollar/sterling options in 1985. They are similar to options on individual stocks but based on currencies. Options give the right to buy or sell the currency, but not the obligation like futures contracts in the months ahead at a fixed price regardless of exchange rate movements. The Stock Exchange planned three, six, nine and 12-month contracts with a choice of different fixed strike prices or exchange rates.

The world's biggest currency options exchange, the Philadelphia Stock Exchange, the USA, was the first to introduce dollar/pound options two- and- a - half years before. The other exchanges offering a dollar/pound option are the European Options Exchange, Amsterdam, The Chicago Exchange.

The London Stock Exchange hopes to establish common option nets with the Philadelphia Stock Exchange, which would allow opened in London to be closed in Philadelphia.

Terms for Hedging Deals

The members of the currency options markets use the futures contracts and options to hedge their cash market positions. Standard terms for new financial instruments traded in the UK, such as options and swaps, were prepared in 1985.

There are three areas of financial hedging:

Interest rate swaps. These are deals in which two parties raise funds in different markets on different terms and essentially swap the benefits. Short-term inter-bank swaps have become a money market activity

Currency options. These convey the right though not the obligation buy or sell a currency at an agreed price at some future date. Options are divided into "calls", which provide the right to buy, and "puts” which give the right to sell the same amount, and are called "call options" and "put options" accordingly. Currency options are a fast growing hedging technique, since they entitle their holders to buy or sell a currency in a specified period at a fixed price which allows users to establish their foreign currency costs in advance of a transaction.

Forward rate agreements. These are agreements, usually between banks, to compensate each other for the effects of changes in interest rates at the end of agreed period.

Notes to the text:

Option – право на продажу или покупку валюты или ценных бумаг в фиксированном объеме к определенной дате по цене использования опциона.

Swap – обменная операция, своп

Call option - Опцион «колл», опцион, предназначенный для покупки

Put option - Опцион «пут», опцион, предназначенный для продажи.

Exercise 1. Translate the text

Фьючерсный контракт (Futures Contract) – это договор о покупке или продаже фиксированного количества определенного товара, валюты или ценных бумаг для их поставки в оговоренную дату в будущем по согласованной цене. В отличии от опциона Фьючерсный контракт связан с определенной покупкой или продажей, а не просто с возможностью купли и продажи; поэтому он может повлечь убытки. В то же время фьючерсы (futures) удобны для тех, кто должен регулярно закупать товары, поскольку позволяют обезопасить себя от колебания цен. Условием такого страхования(хеджирования) является готовность биржевых игроков заключать подобные контракты.

Своп – способ позволяющий обменять один тип валюты или других средств на другой, который необходим, как правило, при посредничестве банка. Например, британская компания обнаруживает, что она может легко получить заем в фунтах стерлингов, но в действительности ей нужен заем в немецких марках. Немецкая компания может столкнуться с противоположной проблемой. Своп позволяет этим компаниям обменять валюту.

Exercise 2. Make your own reports on Futures and Options Markets.

Exercise 3. Read and translate two articles and compare them in writing

Weak euro gets little attention

The Associated Press

Europe's common currency neared parity with the dollar again last week, but its slide wasn't receiving much attention on Saturday's meeting of finance min­isters from the world's seven richest nations.

That's because a weak euro has become a fact of life in economic circles, and many analysts say that's not such a bad thing as long as the U.S. economy stays on the fast track and European growth continues slowly. "The euro is weakening because it needs to do that," said Gerard Gardner, a London-based foreign exchange strategist. "Europe is just finding the right price as to where things work for it."

A cheaper currency makes exports more com­petitive and contributes to trade growth that is also supported by a strong U.S. economy and recovering Asian markets. Likewise, a stronger currency can hurt exports.

Eleven of the 15 European Union countries launched the eure Jan. 4,1999, in hopes that the common currency would challenge the dollar for dominance in world financial markets through closer European integration, borderless travel and virtually free trade.

Euro helps sterling to rise to 14-year high

Financial Times

Sterling continued its breathless ascent yesterday, climbing to a 14-year high against the euro. Higher-than-expected pro­ducer prices added to ster­ling's recent momentum, sending the pound to a high of 61.12 pence against the euro, its fifth consecutive high in as many sessions.

The pound also reached 109.3 on the Bank of England's index, its highest level since January 1986. Sterling's rise was assisted by the continued weakness of the euro, which suffered in London trading from disappointment over the survey from Ger­many. While the confidence survey confirmed expecta­tions that growth in Europe's largest economy was gathering pace, it failed to live up to rumours in the run-up to its release.

Analysts said there was no end in sight to sterling strength. "With the prospect of an even weaker euro there is little reason not to see ster­ling going further," said Chris Furness, senior cur­rency analyst at the eco­nomic consultancy in London. Cameron Crise, currency strategist, said sterling was becoming the ideal safe haven currency. "High yields and high growth make sterling the best choice when the euro is weak or when US equities are sick," he said.

He added that the euro would continue to be depressed by the outflow of investment funds from Europe.

Exercise 4. .Find English equivalents in the texts:

Общая европейская валюта; Вводить Евро; Господство на мировом; финансовом рынке;Набирать темп; Поток инвестиций; Достигать равной отметки; конкурентноспособный; способствовать росту торговли; Европейская интеграция; Безвизовое пересечение границ.

Exercise 5. Explain these words or expressions in English

to near parity with

to stay on the fast track

borderless travel

ster­ling's recent momentum

to gatherpace

the ideal safe haven currency

Exercise 6. Translate the text

Доллар взял 30-рублевый рубеж

ПРОИЗОШЛО это скучно, без повышения цен и краха на биржах. Курс доллара давно подбирался к этой заветной цифре. Но Центробанк всем авторитетом своих золотовалютных запасов, составляющих 32 миллиарда долларов, давал понять: еще рано.

Председателю ЦБ не позавидуешь. Отечествен­ный производитель умоляет «уро­нить» рубль как можно ниже. Наши товары тогда станут дешевле запад­ных. Но такой ход точно не одобрит народ. Цены в этом году значительно возросли, и инфляция в 9 процентов (за 6 месяцев этого года) уже не укладывается в планы правительства. Если вместе с мясом, ботинками и квартплатой страшно подорожает еще и доллар, то пусть власть то­гда не обижается на свой пошатнув­шийся рейтинг.

Вот Виктор Геращенко и баланси­рует, бо­ясь дать резкий крен в одну из сто­рон. Судя по его заявлениям, доллар в этом году не будет стоить дороже 31 рубля.

Тем временем россияне уже по­сматривают в сторону евро. Все специалисты сходятся, что единая валюта Европы будет по от­ношению к доллару крепчать. Но наши банки взимают за перевод долларов в евро такой процент, что проку от подобных вложений пока ноль.

Exercise 7. Use the following words in the extract

trade balance deficit

be exchanged

currencies

fall

trade

currency

rate of exchange

In order for International …. to take place, countries have to buy and sell foreign ….This is done on the foreign exchange market. The value of a.... on the foreign exchange market changes frequently and the price at which money can … … at the particular time is called the ….. The changes in the exchangerate are influenced by many political and economic factors. The value of the currency will probably …., for example, if a country has a large …... …..

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