By Sampson Iroabuchi Onwuka
Bill Lipschutz, the great currency trader, once said that ‘even if you can’t hedge in the forward market, you can create the position through an interest rate swap. However, in the case of sterling dollars, which has a very liquid term forward market, there was certainly a market for at least ten years.” He goes on to illustrate how for instance the sale of pounds on a forward market “converts half that position into a proxy.” Then he argued “that you put on the British pounds, while the original is a call position”. Thus, “half the position is call, the other a put.” A put option is equal to profitable returns on portfolio summary. In terms of market and in terms of currency, there is room to gain on a particular currency.
Well the relevance of that quote from a popular book ‘Market Wizards’ by Jack D. Schwager would not seem very clear unless we add in the contesting difference between US bond markets and European Bond markets, or the American Style of option which can exercised anytime before expiry date and European style of option which can only be exercised on expiry. These two bond and forms of option is quite revealing in coming to grasp with what happens in any markets of the world, given the continuous currency rotation in a time and time decay. For here, the difficulty of Keynes’ ‘equilibrium’ of money and bond become a secondary matter.
This idea of some countries of the world been perpetually poor at the success of bigger economies such as US was hinted on by John Maynard Keynes and perhaps others. But Keynes remedy for regional currency and leveling of price was an economic blunder which Nigeria and West Africa need not imitate. Keynes may have been right that lack of Government activity in the 30’s in creating jobs could have contributed to rate of unemployment, but he is wrong in regional currency which Robert Mundell took over and which is current incarnation of what is now Euro. When you regionalize the money, you flatten the market.
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