Spreading currency forwards: why and how?

Article Abstract:

The continuous time framework is adopted using a hedger that has a currency risk sensitive non-traded cash position. The objective is to explicitly study interest rate risk within a Markovian setting. Results demonstrate that spreading forward contracts, wherein the hedger is short in the nearby contract and long in the deferred contract, leads to a perfect hedge. By extending the analysis to currency futures contracts, it is demonstrated that marking-to-market of futures positions has an influence on the spreading approach.

Hedging (Finance)

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Pricing European average rate currency options

Article Abstract:

A simple methodology that yields closed-form analytical approximations for valuing European option claims is presented. This methodology is called the Wilkinson approximation. The arithmetic average of future foreign exchange rates is employed. This approach does away with laborious numerical procedures for valuing the average rate options in foreign exchange. It is precise and convenient.

Evaluation, Prices and rates, Foreign exchange market

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Inflationary finance and currency substitution in a public finance framework

Article Abstract:

An analysis of the impact of currency substitution on inflationary finance in a public finance context was conducted. It centered on a zero optimal inflation tax, without currency substitution. However, since foreign money is non-taxable, the optimal inflation tax is positive in the face of revenue needs. Likewise, this type of tax is a function of government spending.

Analysis, Economic aspects, Inflation (Finance), Public finance, Taxation, Inflation (Economics)

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