Book description
To be financially literate in today's market, students and professionals in the field of finance must have a solid understanding of the concepts, instruments and application of financial derivatives. This text offers a broad based introduction to financial derivatives and covers both the technical aspects of these instruments and information about the markets in which they are traded. The text balances rigor and accessibility through a clear writing style, a graduated mathematical treatment, and an integration of numerous examples and worked out activities to illustrate the application of techniques and facilitate self-assessment.Table of contents
- Cover
- Title Page
- Foreword
- Preface
- Acknowledgements
- About the Authors
- Derivatives—Through the Window
-
1. Universe of Derivatives: Facts
- Learning Objectives
- Introduction
- Global Foreign Exchange Market Turnover
- Growth of Global Foreign Exchange Turnover
- Concentration in the Banking Industry
- Turnover by Instrument
- Turnover by Maturity
- Turnover by Currency
- Turnover by Currency Pair
- Turnover by Execution Method
- Geographical Distribution of Turnover
- Amount of Foreign Exchange Contracts Outstanding as on End-June 2010
- Growth of Global Foreign Exchange Positions
- Positions by Counterparty
- Positions Value by Instrument
- Positions by Maturity
- Positions by Currency
- Derivatives Outstanding
- Amount Outstanding of Over-the-Counter (OTC) Derivatives
- Amount Outstanding of Exchange Traded Derivatives
- Size of OTC Derivative Markets in India
- Outstanding Derivatives of Banks in India
- Test Your Understanding
-
2. Derivatives Introduced: Indian Perspective
- Learning Objectives
- Derivatives: Legal Definition
- Major Types of Derivatives
- Participants in the Derivatives Market
- History and Legalization of Derivatives in India
- Additions and Amendments to Securities Contract (Regulation) Act, 1956 to Legalize the Derivative as Exchange Traded Contract 18
- Amendments and Additions to Reserve Bank of India Act, 1934 to Legalize OTC Derivatives
- Introduction of Currency Futures and Options on Exchanges in India
- Test Your Understanding
-
3. OTC FX Concepts
- Learning Objectives
- Concept of Base Currency and Home Currency
- Direct and Indirect Quotes
- Currency Regimes
- Fully Convertible
- Partially Convertible
- Pegged
- Concept of Hedging in Over-the-Counter Markets
- Introduction to Forex Rates Determination
- Cash Rate
- Tom Rate
- Spot Rate
- Forward Rate
- Important Related Notes
- Interest Rate Parity Theory
- Calculation of Rates
- How Do Banks Calculate Value Cash/Value Today Foreign Exchange Rate?
- Miscellaneous Illustrations
- Important Concept: Cross Currency
- Test Your Understanding
-
4. ETC FX Concepts
- Learning Objectives
- Introduction
- Currency Futures: Introduction
- Market Participants in Currency Futures Segment
- Hedgers
- Investors
- Arbitrageurs
- Currency Futures: Technical Aspects
- Concept of Margin in ETC Markets
- Initial Margin
- Mark-to-Market Margin
- Maintenance Margin
- Advantages of Currency Futures Market
- Transparency
- Accessibility
- Cost
- Efficient Price Discovery
- Credit Risk
- Standardized Contracts
- NSE and Thomson Reuters Screenshots
- Summary Statement and Ledger Formats
- Difference Between ETC and OTC
- Stock Futures in Brief
- Miscellaneous Illustrations
- Test Your Understanding
- 5. FX Options: Concepts
-
6. FX Options: Valued
- Learning Objectives
- Introduction
- Currency Option Market Mechanics in Real World
- Market Participants
- Introduction to Black and Scholes
- Option Premium Components
- Option Pricing and Greeks
- Binomial Model
- Risk Neutralization Model
- Black–Scholes Pricing Formulas
- Black–Scholes Pricing: Currency Options
- Assumptions of the Black–Scholes Model
- Factors Affecting Option Prices
- Underlying Price and Strike Price
- Time to Expiration
- Volatility
- Risk-free Interest Rate
- Option Greeks: Measurement of Risk in Option Pricing for Vanilla Options
- Graph of the Black–Scholes Model
- Volatility
- Historical/Realized Volatility Calculation
- Estimating Volatility from Historical Data
- Implied Volatility
- Implied Volatility Exhibits
- Application of Option Greeks, Risk Reversal and Fly in Real Market Scenario
- Delta
- Gamma
- Theta
- Vega
- Rho
- Risk Reversal
- Fly
- Miscellaneous Illustrations
- Test Your Understanding
-
7. FX Options: Structured Solutions
- Learning Objectives
- Vanilla Option
- Vanilla Option (European)
- Vanilla Spread (European)
- Range Forward/Risk Reversal
- Seagull
- Participatory Forward
- Ratio Forward
- Fader
- Accumulator Ratio Forward
- Target Redemption Notes (TARN)
- Barrier Option
- Vanilla Option with Knock-In (KI) (American)
- Vanilla Option with Double Knock-In (DKI) (American)
- Vanilla Option with Knock-Out (KO) (American)
- Vanilla Option with Double Knock-Out (DKO) (American)
- Vanilla Option with Knock-In and Knock-Out (KIKO) (American)
- Digitals
- Vanilla Digital (European)
- One Touch (OT) (American)
- Double One Touch (DOT) (American)
- Double Must Touch (DMT) (American)
- No Touch (NT) (American)
- Double No Touch (DNT) (American)
- Daily Range Accrual (RAC)
- Miscellaneous Illustrations
- Range Forward Strategy
- Range Extra Strategy
- Straddle Strategy
- Strangle Strategy
- Butterfly Strategy
- Bull Spread/Call Spread Strategy
- Bear Spread/Put Spread Strategy
- Test Your Understanding
-
8. Interest Rate Products: Vanilla to Exotic
- Learning Objectives
- Interest Rate Swaps
- Forward Rate Agreement
- Arrear Swap
- Full Currency Swap
- Coupon Only Swap
- Interest Rate Options
- Interest Rate Cap
- Collar
- Seagull
- European Knock-Out Cap
- Knock-Ins and Knock-Outs
- Range Accruals
- Variations
- Floating to Fixed Range Accrual
- Fixed to Fixed Range Accrual
- Yield Curve Structures
- Constant Maturity Swap
- Curve Steepeners
- Curve Flatteners
- Key Concepts of Rates Market
- Miscellaneous Illustrations
- Test Your Understanding
-
9. Money Market: The FX Impact
- Learning Objectives
- Introduction
- Interlinkage Between Money Market and Currency Market
- Money Market Instruments
- Overnight Call Money
- Call Money Market
- Repo/Reverse Repo Rate
- Inter Corporate Deposits (ICD)
- Commercial Paper
- Certificate of Deposit
- T-bills
- Most Common Interest Rate Benchmarks and Curves (Indian and Global)
- MIBOR
- Indian Benchmark Rate
- Mumbai Interbank Forward Offered Rate
- Forward Rate Agreement
- Mumbai Interbank Bid Rate
- Overnight Indexed Swap
- London Interbank Offer Rate and Interest Rate Swap
- Global Money Market Risk Indicators and Their Impact on Exchange Rate
- TED Spread
- LIBOR-OIS Spread
- Basis Swap
- Test Your Understanding
-
10. Indianomics
- Learning Objectives
- Types of Policies
- Monetary Policy
- Fiscal Policy
- Indian Data Releases
- Industrial Production Growth Rate
- Consumer Price Index
- Wholesale Price Index
- Balance of Trade (BOT)
- Trade Surplus
- Trade Deficit
- Repo and Reverse Repo Rate
- Foreign Investments
- Kinds of Foreign Investments
- Foreign Institutional Investment
- Test Your Understanding
-
11. Fundamental Analysis and Data Releases
- Learning Objectives
- Employment Data
- Jobless Claims
- Unemployment Rate
- Non-farm Payroll
- Help Wanted Index
- Employee Cost Index (ECI)
- Inflation Data
- Consumer Price Index
- Producer Price Index (PPI)
- Personal Consumption Expenditure (PCE) Deflator
- Import and Export Prices
- Activity-related Variables
- Gross Domestic Product
- Industrial Production
- Institute of Supply Management Manufacturing Index
- Institute of Supply Management Non-manufacturing Index
- Philadelphia Fed Survey
- NAPM: Chicago Index (Chicago PMI)
- New York Empire State Index
- Personal Income and Expenditure Outlays
- Retail Sales
- ICSC—UBS Store Sales
- Leading Indicators
- Existing Home Sales Report
- Housing Starts
- New Home Sales
- Factory Orders
- Durable Goods Orders
- Construction Spending
- Wholesale Trade
- Business Inventories
- Consumer Sentiment: Michigan Survey
- Leading Indicators Composite Index
- Motor Vehicle Sales
- MBA Purchase Applications
- External Sector
- International Trade Balance
- Current Account Balance
- Treasury International Capital Data
- Other Data Releases
- US Treasury Budget
- Money Supply
- Beige Book
- Productivity and Costs
- Consumer Confidence Index
- Consumer Credit Report
- Mutual Fund Flows
- Some International Indicators
- Tankan Survey: Bank of Japan
- IFO Survey
- ZEW Survey
- Purchasing Managers Index
- Retail Price Index: UK
- Royal Institute of Chartered Surveyors Residential Housing Survey
- Test Your Understanding
-
12. Technical Analysis
- Learning Objectives
- Introduction and Importance of Technical Analysis
- Kinds of Charts
- Fundamental Analysis Versus Technical Analysis
- Technical Analysis Concepts
- Support and Resistance
- Trends
- Introduction to Candlestick
- Types of Candles
- Reading Chart Patterns
- Reversal Patterns
- Continuation Pattern
- Technical Indicator
- Leading Indicators
- Lagging Indicators
- Steps in Technical Analysis
- Test Your Understanding
-
13. ISDA Agreement: Documenting Derivatives
- Learning Objectives
- Introduction
- ISDA Master Agreement
- History
- Architecture of the Agreement
- Single Agreement
- Events of Default and Termination Events
- Close Out Netting
- Taxation
- Multi-branch Issues
- Related Documents
- Schedule
- Credit Support Annex
- Confirmations
- Definitions
- Legal Issues
- Netting
- Set-off
- Authority and Capacity
- Reliance and Suitability
- Termination
- Advantages of the Agreement
- Test Your Understanding
- Appendix 1: Case Studies
- Appendix 2: Term Sheets
- Appendix 3: Derivative Disclosures in Annual Reports
- Appendix 4: Master Circular on Risk Management and Inter-Bank Dealings (Issued on 02 July 2007)
- Appendix 5: Master Circular on Risk Management and Inter-Bank Dealings (Issued on 01 July 2011)
- Appendix 6: Circular Issued with Relation to Suitability and Appropriateness of Derivative Transactions
- Index
- Copyright
Product information
- Title: Financial Derivatives : The Currency and Rates Factor
- Author(s):
- Release date: June 2012
- Publisher(s): Pearson Education India
- ISBN: 9789352861156
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