7, few tax practitioners would have suggested that over-the-counter (OTC) foreign currency options
on "major" currencies should be accorded Sec.
The primary subject matter of this case is hedging foreign currency exchange rate risk using foreign currency options
. Secondary issues examined include evaluating financial risk and comparing hedging techniques to effectively manage unwanted exposure.
Topics stressed are model building, inference, option pricing, and realized variation, including process, exchange rates, volatility modeling, Bayesian analysis, and foreign currency options
Risk strategies: Monsanto handles market risk related to interest foreign currency rates and commodity prices by engaging in various derivative transactions, including foreign currency forward exchange contracts and foreign currency options
Judged by the impact of volatility on the price of foreign currency options
-- important instruments for hedging foreign currency exposure -- those cost savings could be significant (see Box VIII.2).
Some of the products available from the Commonwealth Bank include Forward Exchange Contracts, a 24-hour Market Watch service, Foreign Currency Options
, or Flexible Forward Contracts.
Our paper shows that Basle's current simplified model for foreign currency options
does not systematically relate capital requirements to market risk.
Dunn apparently did engage in many such transactions by trading in exotic positions such as strangles,(21) by "contract[ing] directly with international banks and others without making use of any regulated exchange or board of trade."(22) In other words, Dunn engaged in foreign currency options
in the off-exchange or OTC markets.(23) Dunn made these trades using the names "of [the] defendants, and no participations or options were sold directly to investors."(24)
Foreign currency options
provide the protection of a "worst case" rate, while allowing the option holder to benefit from market movements in their favor.
TABULAR DATA OMITTED This would be a significant roll-back of the current rules, which permit deferrals of gains and losses on qualifying hedges involving interest rate and commodity futures (SFAS 80) and on purchased foreign currency options
(EITF Issue No.
Taxpayers identify transactions as hedges to escape mark-to-market treatment that applies to futures contracts, most exchange options and foreign currency options
. Taxpayers also identify transactions as hedges to escape the various loss deferral rules that apply to straddle transactions.