A Brief History of the FX Market’s Evolution
Foreword
Introduction
A Brief History of the FX Market’s Evolution
Foreign Exchange Markets
Predicting FX Movement
Basic FX Instruments
Trading Floor Dynamics
FX Options: An Intuitive Approach
Famous Formulas, Fame and Fortune
Getting to the Formula and the Correct Probability Distribution
The Greeks – A Practical Approach
Portfolio Management and Second-order Greeks
FX Options Trading Book & Risk Measurement
Hedging FX Risk at Corporations
You Have Options
Situations Gone Mad, From the Most Complex to the Simplest
Speculators and Hedge Funds: How Do Portfolio Managers Make Money?
Speculating and Hedging: The Fundamental Differences
Epilogue
Humankind has a very long history of using different currencies to facilitate trade, going as far back as 10,000 years ago. Our existing system of currency creation and exchange, based on state authority and credibility, is very new. In this chapter, we will briefly explore the beginnings of this system following WWII, and its evolution into a fiat system of currencies. We will also highlight the transformative impact on this market of regulation, and the astonishing increase in computing horsepower.
IN THE BEGINNING
In 1944, at Bretton Woods, the US was about to become the only real economic victor of both world wars. It used its dominance to bring to the table all relevant countries in its sphere of influence. The US created a global accord that stabilised the global financial system and secured its economic hegemony for the foreseeable future. At the heart of this system were a set of rules and ethos that discouraged speculation, and provided the maximum possible certainty of exchange rates and a mechanism for the massive global debts to become manageable. Global debt was a huge problem after WWII – for example, US government debt had risen from 20% of GDP in 1933 to 112%
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