The Foreign Exchange Option Market, 1917-1921

Abstract

Foreign exchange option markets were active during and after the First World War. Call options on German marks were the dominant instrument, but calls on French francs, Italian lira, and other currencies also traded. The market evolved from one involving relatively large sums of money per transaction to one focused on tiny retail transactions. The largest clientele for the options consisted of optimistic investors of German heritage. The ultimate focus on less sophisticated investors, and the low status of the entities offering options, provides insight into the perception of option dealers in the early 20th century.