TEMA: FINANZAS INTERNACIONALES

DERIVATIVE

EXHANGE RATE MARKET ALMOST THE SAME AS THE TRADITIONAL MARKET

BUYERS AND SELLERS

OPERATIONS IN CASH, PAY INMEDIATLY

RETAIL AND NON RETAIL OPERATIONS

EXHANGE CURRENCY FOR ANOTHER CURRENCY

EXCHANGE OF CURRENCY ARE BASED ON CONTRACTS

DERIVATIVE IS A TYPE OF CONTRACT: A CONTRACT TO BUY OR SELL THAT WILL BE EFFECTIVE IN THE FUTURE

IN A CONTRACT WE NEED TO STABLISH:

a. PRICE

b. VOLUME

c. DATE

MARKETS OF DERIVATIVES:

a- SWAPS

b. FORWARD

c. FUTURE

d. OPTION-----CALL

------PUT

1. FORWARD CONTRACT:

AGREEMENT TODAY BUT THE TRANSACTION IS DUE IN THE FUTURE

YOU DESIGN IT, YOU FIX THE PRICE IN THE FUTURE BY CONTRACT

EXAMPLE: MEXICO SELLS OIL ASSUME BARREL OF OIL IN 2006 $45, IN 2007 $60, IN 2008 $30

2. FUTURES CONTRACT

AGREEMENT TODAY BUT THE TRANSACTION IS DUE IN THE FUTURE

YOUDO NOT DESIGN IT, TERMS ARE GIVEN. YOU FIX THE PRICE IN THE FUTURE BY CONTRACT. STANDARIZED

DIFFERENCES BETWEEN FUTURES AND FORWRD:

A. CONTRACT SIZE

B. MATURITY (IN FUTURES IS STANDARIZED 3, 6MONTHS OR 1 YEAR)

C. LOCATION OF TRADING (futures formal market example in mexico is called MEXDER, in forward there are informal markets)

D. FUTURES REQUIRE COLLATERAL(in order to participate in futures market you need to pay, why?? Because it is regulated. In forward you pay an spread (difference between bid and ask))

E. COMMISSIONS (a payment to make the transaction example. Broker)

F. LIQUIDITY (a market in which is more difficult to buy or sell FUTURE IS MORE LIQUIDITY THAN FORWARD)

RISK MANAGEMENT WITH FUTURES AND FORWARDS

Financial managers prefer foreign currency forwards over futures because of forwards simplicity of use and position maintenance

Financial speculators prefer futures over forwards

MAIN ELEMENTS FOR A CURRENCY OPTION

OPTION: BUY OR SELL

CALL OPTION: BUY CURRENCY

Premium: cost of an option

STRIKE PRICE: REFERENCE TO EXERCISE OR NOT

SPOT PRICE(SUBYACENT): PRICE IN THE FUTURE

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