Tag: Currencies

Currencies

The Geopolitics of Currencies

The Geopolitics of Currencies

The 1944 Bretton Woods agreement jumpstarted the dollar into its reserve currency status. While economists proposed global trust and confidence in the US ability to pay its obligations, a more compelling justitification has its roots in United States’ political influence.

A Primer on Option Pricing Models

A Primer on Option Pricing Models

Option Pricing. An option is a contract entitling the holder to buy or sell designated security at or within a certain period of time at a particular price. Options contracts are characterized by a nonlinear payoff because the price depends on a nonlinear function of the underlying. Thus, it is impossible to price without a model for the underlying but the assumptions of mathematical finance (not moving the market; liquidity, jumps; shorting; fractional quantities; no transaction costs) substantially make difficult to determine a single model always valid with the changing market conditions.

A Primer on Financial Derivatives

A Primer on Financial Derivatives

Financial derivatives are often used for commodities, like corn, oil, gasoline, or gold, and for currencies, often the U.S. Dollar abd the Euro. However, there are derivatives based on stocks, bonds, interest rates, and indices. Companies use derivatives to lower their operational risk for the delivery of raw materials, the changes in exchange rates or in interest rates. Trading requires a small down payment (margin) and usually consists of rolling positions (contracts are liquidated by another derivative before coming to term).

Guessing Market Cycles

Guessing Market Cycles

Market cycles can be analized through the formation of bubbles consisting of four phases: Accumulation, Mark-Up, Distribution, and Mark-Down. Usually, accumulation coincides with the early stages of recovery, mark-up with the consolidation of the economic condition leading to a bullish sentiment, distribution substantially with lateral movements and indecision in market sentiment, and mark-down with the early stages of mid recession.

Oil Correlations with Commodity Currencies

Oil Correlations with Commodity Currencies

Currencies move with supply and demand, politics, interest rates, speculation, and GDP. Thus, whenever growth in a country is mainly commanded by commodities exports, some currencies are generally correlated with commodity prices. Major commodity currencies include the Australian Dollar, the New Zealand Dollar, the Canadian Dollar, the Japanese Yen, and the Swiss Franc. Minor currencies include the Russian Ruble, the Colombian Peso, and the Peruvian Sol.

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