Exotic Currencies Research Articles

East Caribbean Dollar (1949-2023): From Private Bank Notes to Digital Currency

The article is devoted to the study of exotic currencies, namely the history of the development and formation of the dollar of the East Caribbean Islands. The object of study in this article is the East Caribbean dollar. The subject of this article is the main historical stages of the cash circulation of the East Caribbean dollar. In this article, the authors highlight and analyze the main historical stages of the functioning of currency: from private bank notes of the British Caribbean territories to the modern stage of currency development, at which the process of transition to digital currency has already begun. The bibliographic base of the article is represented by current research on the topic of work, official data from the Eastern Caribbean Central Bank, as well as the online resource CBDC Tracker. The research methodology is based on general scientific methods: classification method, analysis, synthesis, induction and deduction (abstract logical method). Also, due to the historical context of the work, historical research methods are additionally used: historical-genetic and narrative methods. The scientific novelty of this article lies in the detailed study and analysis of the main stages in the history of the development of the East Caribbean dollar, namely: the dollar of the British Caribbean Territories (1949-1965), the dollar of the Eastern Caribbean Islands before the founding of a common central bank (1965-1983) and the dollar of Eastern Caribbean Islands today (1983-2023). In conclusion, the authors define the role of the East Caribbean dollar in the economies of the countries that use it and draw a conclusion about the colonial genesis of this currency. It is noted that the first experience of launching a digital version of the East Caribbean dollar was controversial.

Exotic Currencies and the Frontier Premium in Foreign Exchange Markets

Exotic Currencies and the Frontier Premium in Foreign Exchange Markets

A Fourier cosine expansion method for pricing FX-TARN under Lévy processes

<abstract><p>In this paper, we extend the Fourier cosine expansion (COS) method to the pricing of {foreign exchange} target redemption note (FX-TARN), a popular exotic currency option. We take the FX spot rate and the cumulated positive cash flow as two state variables and factor the joint distribution by two marginals that can be approximated by Fourier cosine expansions. To recover the Fourier coefficients recursively, we approximate the two-dimensional integration by higher-order quadratures such as Gauss-Legendre or Clenshaw-Curtis quadrature for the integration over the spot rate. We derive the analytical formulas for the price under different knock-out types. We demonstrate that fast Fourier transform (FFT) can be employed to obtain the Fourier coefficients efficiently. We also evaluate the performance and accuracy of the method through a number of numerical experiments.</p></abstract>

Bronze Age Cyprus and the Aegean: ‘exotic currency’ and objects of connectivity

The island of Cyprus is justly regarded as a key juncture in the eastern Mediterranean world, one that played a prominent role in the exchange networks operating within and beyond that region, especially during the Late Bronze Age (LBA). With respect to the Aegean world, contacts are well represented by Aegean and Aegean-style objects and imagery found on the island, a form of ‘exotic currency’ often associated with elite feasting and funerary activities. The arts and crafts of Bronze Age Cyprus are particularly rich in representational terms, particularly evident in the floruit of figurative representations depicted on the pottery, metalwork, ivories and figurines of the LBA. When we focus down onto individual objects or classes of objects, the role of hybridisation practices also seems evident, and any discussion of connectivity between the Aegean world and Cyprus must take such practices into account. The purpose of the present study is to consider a representative example of these objects of connectivity during both the Prehistoric and Protohistoric Bronze Ages, always highlighting the Aegean dimension. In turn, the nature of Aegean-Cypriot relations during and at the end of the LBA is considered with respect to the merchants, mariners, exchange systems and spheres of interaction that characterised Cypro-Aegean connectivity.

Impact of stock market trading on currency market volatility spillovers

This research aims to detect the volatility linkages among various currencies during operating and non-operating hours of three major stock markets (Tokyo, London and New York) by employing bivariate VAR-BEKK-GARCH model in selected currency pairs. In particular, the aim is to analyze whether the major stock markets have a differential impact on volatility linkages in currency markets. The results indicate that volatility linkages in intraday are far stronger then in daily results. One remarkable result is that rather than major currencies, some minor and exotic currencies play a leading role in volatility transmission during trading hours of major stock markets.

Systemic Risk and Foreign Currency Positions of Banks: Evidence from Emerging Europe

This article investigates the impact of foreign currency (FX) denominated assets and liabilities on systemic risk by using a unique hand-collected dataset of bank-level FX positions for the period 2005–2012. The sample consists of banks from Central and Eastern Europe with large share of FX exposures on the balance sheet. Empirical findings indicate that systemic risk is dependent on the currency choice of financial institutions. While FX positions denominating in EUR and USD do not pose systemic risk concerns, FX positions denominating in exotic currencies like CHF significantly enhance the banks’ systemic importance. The negative influence of CHF positions might be reduced through prudent corporate governance mechanisms, tight restrictions on banking activity, and more restrictive limits on foreign currency lending in the home countries of the bank holding companies.

Analytical upper bounds for American exotic currency options with a stochastic skew model

Analytical upper bounds for American exotic currency options with a stochastic skew model

Analytical Upper Bounds for American Exotic Currency Options with a Stochastic Skew Model

On the basis that most instruments traded on options markets are American-style ones, this paper develops the analytical upper and lower bounds of American cross-currency and quanto options under the stochastic skew model proposed by Carr and Wu (2007) when domestic risk free rates are higher or lower than the foreign risk free rates. The analytical bounds derived here are not only very tight and accurate for American option pricing, but also offer a quasi-closed form solution which is able to enhance evaluation and hedging efficiency in real world markets. We also acquire the analytical solutions for European cross-currency and quanto options given by applying two separate mean-reverting square-root processes to two separate time-changed Levy processes, consistent with the realistic phenomena of currency returns.

Tax motivated derivative structures with 'sweet spot' payoffs

In this paper, we review the role of market microstructure issues in the design and function of tax shelter schemes based on exotic currency option transactions. We review instruments commonly used in the currency derivative markets and discuss the critical role of market frictions in evaluating the sensibility of transactions from an economic perspective. We analyse a sample transaction with a potential 'sweet spot' payoff in order to identify the role of the potential sweet spot payoff in the valuation of the structure. We estimate the fundamental value of the structure using a theoretical value for the sweet spot. We then explain that realistic consideration of market microstructure, or trading frictions, suggest that the actual value claim for a potential sweet spot payoff is zero. Our analysis provides a simple framework for determination of the reasonableness of a claimed profit motive as motivation for entering into structured transactions that contain currency derivatives.

Tax motivated derivative structures with 'sweet spot' payoffs

In this paper, we review the role of market microstructure issues in the design and function of tax shelter schemes based on exotic currency option transactions. We review instruments commonly used in the currency derivative markets and discuss the critical role of market frictions in evaluating the sensibility of transactions from an economic perspective. We analyse a sample transaction with a potential 'sweet spot' payoff in order to identify the role of the potential sweet spot payoff in the valuation of the structure. We estimate the fundamental value of the structure using a theoretical value for the sweet spot. We then explain that realistic consideration of market microstructure, or trading frictions, suggest that the actual value claim for a potential sweet spot payoff is zero. Our analysis provides a simple framework for determination of the reasonableness of a claimed profit motive as motivation for entering into structured transactions that contain currency derivatives.

Do Foreign Exchange Markets Still Trend?

Is it possible to profitably trade trends in foreign currencies? We examine the major currency futures contracts which have been trading since the 1970s as well as more recent contracts on exotic currencies that have only begun to trade in the past few years. The main conclusion is that the era of easy profits from simple trend following strategies in major foreign currencies is over. The markets have adapted to the extent that profits from these simple trading strategies have vanished. Presumably, trending may be a feature confined to currencies in the early years of a floating rate regime. When we look at some newly trading currencies, we see more attractive profit opportunities. Newly trading currency futures prices, like their counterparts thirty years ago, appear susceptible to trend following trading strategies.

Do Foreign Exchange Markets Still Trend?

Is it possible to trend-trade profitably in foreign currencies? Examination of both major currency futures contracts that have been trading since the 1970s and more recent contracts on exotic currencies that have begun to trade only in the past several years shows that the era of easy profits in major foreign currencies from simple trend-following strategies is over. Trend-trading in a currency may have been advantageous in the early years of a floating-rate regime, but markets have adapted so that profits from these simple trading strategies have vanished. Newly trading currencies do appear susceptible to trend-following trading strategies, and there may remain in this case some attractive profit opportunities.

Do Exotic Currencies Improve the Risk-Adjusted Performance of Dynamic Currency Overlays?

Do Exotic Currencies Improve the Risk-Adjusted Performance of Dynamic Currency Overlays?

Do exotic currencies improve the risk-adjusted performance of dynamic currency overlays?

This paper investigates the benefits of additional international diversification into emerging stock markets, from the point of view of a US investor. The increase in risk-adjusted returns with exotic currencies (compared with a benchmark portfolio of only major currencies investments) is achieved through the use of a currency overlay programme. The impact of the exotic currency overlay programme is assessed, using daily closing prices for several international stock markets and currencies. Portfolio returns and volatility are analysed through the use of a dynamic hedge based on a simple technical trading rule strategy. The performance is compared with a static hedge and an unhedged position over the period January 1994 to June 2000. The results indicate that the use of an overlay to protect currency exposures adds to the risk-adjusted returns of the portfolio. In particular, the use of exotic currencies is proven to add superior risk-adjusted returns before and after the addition of transaction costs, compared with an overlay of only major currency pairs to the US dollar. The results suggest that a greater potential for gains is available from exotic currency hedging using trend-following techniques than is the case with major currency pairs to the US dollar. They therefore demonstrate a further benefit of international diversification to emerging markets.

Meltdown: Asia's Boom, Bust, and Beyond

On July 2, 1997, Thailand made a decision to devalue the baht. At first, the move seemed merely another in the ceaseless cat-and-mouse game between bankers and speculators in exotic currencies. Yet the event would trigger a financial earthquake to shake a continentz In just over a year, the once wondrous Asian economy would lie in ruins. Today the aftershocks ripple from Sao Paolo to the Silicon Valley. How could a region that had been the most dynamic growth zone for a decade self-destruct seemingly overnight?Senior specialists at Business Week who have covered Asia's economy from boom to bust to the wrenching aftermath, Mark Clifford and Pete Engardio vividly tell the story of this debacle. Drawing on interviews with the region's leading politicians, industrialists, and technocrats, the authors explore the causes and implications of the most severe financial collapse since the Great Depression. The Asian economic miracle was not a mirage. The continent's development strategies went terribly wrong due to a tendency to carry initiatives to wild excess, compounded by problems hidden by authoritarian political systems. Can Asia's economies get back on the growth track? What safeguards might keep other developing countries from crashing? Does the global financial system need urgent, basic reform? Meltdown confronts these critical questions and more for compelling reading.

CURRENCY QUESTIONS IN THE CARIBBEAN

The Haitian gourde is one of the most curious and exotic currencies of the world. On it is printed the striking statement: “The banknote, in conformity with the Constitution of the . Republic of Haiti, is payable to the bearer in legal money of the United States of America at the rate of five gourdes for one dollar.” Amazingly, the gourde stands exactly where it was set by the Convention of April 12, 1919 at five gourdes per dollar. This fixity in the exchange rate is a remarkable achievement of an otherwise totally squalid economy record, which has been made very much due to the total convertibility of gourdes into dollars and their easy co‐existence and use in Haiti. Such a feat runs counter to early suggestions in the newly developing currency substitution literature that currency competition promotes instability in rates. A very different story emerges due west on the largest English‐speaking island in the Caribbean, Jamaica, where monetary turbulence has been the rule since 1978. The currency there was initially backed 50 percent by pounds sterling when the Bank of Jamaica began operation in May 1961, but switched to a dollar peg in January 1973 at $1,10 US, a rate maintained through 1977. After the economic problems of 1976–77, the Jamaican dollar was devalued 15½ percent in January 1978 and, under the strong advice of the International Monetary Fund, a further 32 percent in May 1978. Following was a “crawling peg” devaluation of 1½ percent per month until October 1978, then 1 percent a month until May 1979, when the current dollar peg of 56.13 cents per Jamaican dollar was established. This dramatic decline in the currency was caused in part by expansionary monetary policies of the Bank of Jamaica monetizing budget deficits, and in part by the decline in tourism, the fall in bauxite and steel output, and the oil shocks Jamaica experienced. (From 1974 to 1979, the government budget deficit went from 168 million Jamaican dollars (J$) to 551 mill J$ with a peak of 625 million in 1978, holdings of government debt by the central bank from 72 to 898 mill J$, and net foreign assets or reserves of the central bank plunged from 141 to minus 778 mill J$ (Source: International Financial Statistics, IMF 1980 Yearbook and IFS January 1981 issue).) The International Monetary Fund set specific performance criteria such as devaluation and ceilings on government budget deficits for successive draws on a substantial loan of 351 million U.S. dollars or 360 percent of Jamaica's quota at the end of 1979.