FX Options reach China

The Chinese road map is well onits way to a freely traded Yuan as China's foreign Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term regulator announceed the trading of call and put foreign currency options in the country to help traders and investors reduce their exposure to exchange rate fluctuations.

Trading of call and put options will begin on Dec. 1 this year, the State Administration of Foreign Exchange (SAFE), the national currency regulator, said in a statement on its website.

A foreign currency call option is a financial contract between two parties that gives the buyer the right, but not the obligation, to purchase an agreed upon quantity of underlying foreign currencies from the seller at an agreed upon time for a certain price.

Meantime, a put option gives the buyer the right to sell an underlying foreign currency at strike price while the seller -- usually banks -- is obligated to buy the assets upon their maturity if the buyer exercises the option.

The SAFE said the introduction of call and put options to the on-shore market will boost hedging flexibility amid currency fluctuations and reduce transaction costs for Chinese companies.

The new SAFE arrangement prohibits the "naked selling" of options to prevent massive speculative transactions, stipulating that only traders and investors with foreign trade or investment businesses can buy such Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term options.

Previously, Chinese companies or investors involved in foreign trade or investment corporations could only hedge currency risks through offshore non-deliverable forwards (NDF) markets.

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