Foreign exchange options are different from forward foreign exchange contracts. Forward foreign exchange contracts are obliged to execute foreign exchange contracts at maturity, while foreign exchange options contracts choose to execute or not to execute the contracts according to the wishes of contract holders. The termination date of the contract is called the expiration date. Each option contract specifies the amount of foreign currency to be traded, maturity date, exercise price and option price (insurance premium). According to the execution date of the contract, options trading can be divided into American options and European options. If an option can be exercised before the expiration date, it is called an American option; If it can only be exercised on the maturity date, it is called a European option. When the holder of foreign exchange options buys or sells options on or before the expiration date, the agreed exchange rate is called the strike price or strike price. The strike price (exchange rate) is set after selection, which is different from the forward exchange rate. The forward discount or premium is determined by the bank that buys and sells foreign exchange. The buyer of a foreign exchange option pays a fee to the seller, which is called the option price or premium.
Regarding the risk management of the foreign exchange futures options market, the Basel Committee on Banking Supervision of the Bank for International Settlements, the International Organization of Securities Regulators, the International Monetary Fund and the non-governmental organization G-30 all put forward positive and effective suggestions, pointing out that in the process of establishing and implementing the risk management framework, at least the following steps should be included:
-Be clear about the risk you can bear. Starting from objective reality (including financial and psychological factors), setting an acceptable risk range will easily lead to business crisis; Too small is not conducive to making full use of the preservation and appreciation of enterprise assets.
-Clarify the rights and responsibilities of all levels of governance. Realize the equivalence of rights and responsibilities, encourage enterprising, prevent excessive risks, and achieve optimal management through governance levels and governance scope.
-Formulate the governance structure of risk management. Specifically, it includes: risk identification, risk measurement, risk management method selection, risk control, risk monitoring, risk reporting and evaluation.
-Ensure that there is an adequate information feedback and public supervision system. The information society needs corresponding information systems, especially the high-risk futures market. Only efficient information feedback can satisfy the existence of effective market premise, promote the rational flow of investors and realize the interaction between spot market and futures market. At the same time, the fairness of market governance also needs public social supervision.
-Pay close attention to the international market dynamics. There are 7 trillion dollars of hot money and 16 trillion dollars of national debt in the international market, so we should pay close attention to the situation that a large amount of funds are concentrated in high-risk derivatives when implementing risk management. About 90% of the world's derivatives business is in the hands of a few American commercial banks, such as Morgan Bank, Citibank, Bank of America and Chase Bank. With the increase of off-balance-sheet business, less than 2% of daily derivative transactions are related to physical trade, which shows that risks are highly concentrated.