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Foreign Exchange

FX news: Synthetic currencies and indices abound

It has been a busy week for the launch of indices and synthetic currencies, which points to plenty of vibrancy in the market. I thought Mansoor Mohi-uddin, UBS’s head of FX strategy, was going a bit far in predicting average daily volumes in the FX market of $10 trillion by 2020, but I can’t deny that it feels like the market is expanding very rapidly at times. If Mansoor is including the use of products such as these in his figures, he might not be too wide of the mark:


FRB10 series launched by FTSE


In September 2009 FTSE launched its currency FRB5 indices (featuring USD, EUR, JPY, GBP and CHF). This must have been deemed a success because this week saw the launch of the FRB10 series, featuring AUD, CAD, CHF, EUR, GBP, NOK, NZD, SEK, JPY and USD.


FRB stands for Forward Rate Bias – the carry trade to you and me – and the index series measures (and captures, if you invest in a vehicle based on the index) FX beta derived from systematically buying the higher yielding currency in any currency pair.


The exact procedure is: for any pair, buy the higher yielder and sell the lower, value one month outright.





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