Derivatives Week
–Eleni Himaras
Corporate end-users are hedging against a rise in the U.S. dollar/Chinese yuan using bonus forwards in an otherwise quiet Asian fx market.
A bonus forward allows corporates to sell the dollar and buy the yuan at a more favorable rate than a plain vanilla forward, as long spot stays below a predetermined barrier at maturity. For example, the corporate may enter a one-year contract to sell the dollar at a strike of CNY0.03 above spot, as long as spot is less than CNY6.85.
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