Financial Commodities: Eurozone Money Markets: Overnight rates steady; trading expected to be quiet this week...
1017 GMT (Dow Jones) - Eurozone Money Markets The overnight lending rate was 2.58%-2.61% on Tuesday, basically the same as last week. Traders said the ECB's tender results were basically expected by the market. Market trading is expected to remain quiet this week. The reserve balances of banks with the European Central Bank decreased from 164.313 billion euros to 159.551 billion euros on Monday.
The average reserve balance is 160.384 billion euros, slightly lower than the European Central Bank’s minimum reserve requirement of 160.399 billion euros.
Liquidity needs caused by spontaneous factors rose from 243.946 billion euros to 248.938 billion euros.
Premium and discount: The difference between the forward exchange rate and the spot exchange rate is expressed by premium, discount and parity. A premium means that the forward exchange rate is higher than the spot rate, and a discount means the opposite. Generally speaking, the forward exchange rates of currencies with higher interest rates are mostly at a discount, and the forward exchange rates of currencies with lower interest rates are mostly at a premium.
Premiums and discounts in foreign exchange transactions
Premiums refer to the phenomenon when the “interest rate of the quoted currency” is greater than the “interest rate of the quoted currency”, while premiums occur when the “interest rate of the quoted currency” The situation when the "currency rate" is less than the "quote currency rate".
Example of discount:
If the price of GBP/USD is 1.5030/40. The exchange rate points (Swap Points) are arranged in the order of large on the left and small on the right. The two-way interest rate for overnight lending of pounds sterling is: 4.00% (deposit), -4.25% (borrowing). The two-way interest rate for overnight U.S. dollar withdrawals is: 2.25% (deposit)-2.50% (borrowing). Then
1. Buy GBP/USD. In the above example, the exchange point calculated is -0.63;
2. Selling GBP/USD is calculated as follows:
1.5030×(2.25%-4.25%)×1 day /360 days=-0.000083
That is, the Swap Point is -0.83 points.
Therefore, the overnight exchange points of GBP/USD are 0.83/0.63 basic points.
This is the professional usage of discount in the market.
Example of premium:
If the price of USD/CHF is 1.6610/20 (the arrangement of exchange rate points is small on the left and large on the right). The three-month U.S. dollar two-way interest rate is 2.25% and -2.50%. The two-way interest rates for three-month Swiss francs are 4.75% and -5.00%. Then
1. When selling USD and buying CHF, the overnight exchange points are calculated as follows:
1.6610×(3.75%-2.5%)×1 day/360 days
That is 0.58 basic points (Pips).
2. When buying USD and selling CHF, the overnight exchange points are calculated as follows:
1.6620×(5.00%-2.25%)×1 day/360 days=0.000127 < /p>
That is 1.27 basic points (Pips).
Thus, the overnight exchange pips for USD/CHF are 0.58/1.27 pips.
For individuals who speculate in foreign exchange, they may be more concerned about the premiums and discounts in spot foreign exchange transactions. Generally speaking, when conducting foreign exchange transactions in the international foreign exchange market, unless a specific date is specified, they will all be regarded as spot transactions. It is currently included in the world's two major electronic financial market real-time quotation systems REUTERS (Reuters) and Moneyline (Deli Wealth)'s domestic SeeWaa (Shihua Financial Information). The foreign exchange rate quotation displayed is the spot rate (Spot Rate). If the delivery date between the buyer and seller is not a spot delivery (Spot Date), the exchange rate must be adjusted to reflect the interest rate difference between the two currencies, so the exchange rate on a specific date will be different from the spot rate.
There are two methods of currency quotation: direct and indirect quotation. The direct quotation method, also known as the price quotation method, refers to using the domestic currency to measure one unit of foreign currency; the indirect quotation method, also known as the quantity quotation method, refers to the amount of foreign currency equivalent to one unit of the domestic currency.
"Exchange points" come from the "interest rate difference" between the two trading currencies. This difference can be expressed in the form of exchange rates, also known as the exchange rate points (SWAP POINT) between the two currencies within a certain period of time.
Premiums and discounts in convertible bond investment (0610 supplement)
The performance of premiums and discounts in conversion parity: the conversion price is related to the face value of the convertible bond, and the conversion parity is related to the convertible bond price. It is related to the market price of the bond (conversion parity = market price of convertible bonds/conversion ratio). When the stock price in the market is equal to the conversion parity, investors are in breakeven; when the stock market price is lower than the conversion parity, it is at a discount; on the contrary, when it is at a premium, there are arbitrage opportunities. The calculation of premium and discount can be done by directly comparing the stock market price and conversion parity.
The premium and discount between spot and futures▲
In the futures market, if the spot price is lower than the futures price, the basis difference is negative, and the price of forward futures is higher. Regarding the price of near-term futures, this situation is called "futures premium", also known as "spot discount". The excess of forward futures price over the price of near-term futures is called "futures premium rate" (CONTANGO); if the price of forward futures If the price of forward futures is lower than the price of near-term futures and the price of spot goods is higher than the price of futures, the basis is positive. This situation is called "futures discount" or "spot premium". The price of forward futures is lower than the price of near-term futures. The part is called "futures discount rate" (BACKWARDATION).
The concept of basis: refers to the difference between the spot price of a specific commodity at a specific time and place and the futures price of the commodity in the futures market, that is: basis = spot price - futures price.
The basis contains two components, namely the "time" and "shortness" factors between the spot and futures markets. The former reflects the time factor between the two markets, that is, the holding costs of two different delivery months. It also includes storage fees, interest, insurance premiums and loss fees, among which interest rate changes have a great impact on holding costs; the latter It reflects the spatial factors between spot and futures markets. The basis includes transportation costs and carrying costs between the two markets. This is also the basic reason why the basis difference between two different places is different at the same time.
It can be seen that the basis difference in each region varies with transportation costs. But for the same market, the basis difference in different periods should theoretically fully reflect the holding cost, that is, the basis difference of the holding cost changes with time. The longer the time until the expiration of the futures contract, the longer the holding cost. The greater the cost, and when it is very close to the expiration date of the contract, the spot price and futures price in a certain place must be similar or equal.
We usually see more premiums and discounts such as LME copper, CBOT beans and Singapore oil.
The premiums and discounts refer to this kind of premiums and discounts. Basis changes.
Historically, trade methods have continued to develop. Initially, it was spot trading with one hand of money and one hand of goods. Later, based on the establishment of the credit system, forward spot trading appeared. Cotton futures began in 1870. trade. Under the current situation in the United States, there is no futures market or spot market that our academic circles often talk about. The actual situation is: the price formed by the futures exchange is the benchmark price for spot circulation, and spot circulation is just a logistics system. Due to the origin and quality, The difference is that when trading spot goods, both parties need to negotiate a premium or discount on the futures price, that is:
Transaction price = futures price + premium or discount
In other words, the futures market It is only a concept distinguished from the spot market in academic research. In actual operation, the two are a whole market. Futures pricing and spot logistics only work together organically to enable the market mechanism to operate normally.
In addition, futures prices also include near- and far-month contracts. If the price of the far-month futures contract is higher than the near-month contract, the far month will have a premium to the near month; conversely, the far month will have a discount to the near month. . From another perspective, the same is true for the near month versus the far month.
Therefore, after understanding this relationship, we can roughly look at premiums and discounts in this way: taking A as the standard, B is relatively speaking, if its value (generally expressed as price) is higher, then It is a premium, otherwise it is a discount.
For example, the fuel oil delivery standard specified by the Shanghai Futures Exchange is 180CST high-sulfur fuel oil. If a seller company temporarily does not have fuel oil of this standard, it will replace it with imported low-sulfur fuel oil of a higher standard. Sulfur No. 180 fuel oil, the latter is at a premium relative to the former; if the SHFE system allows other lower grade fuel oil to be delivered, it is at a discount relative to the standard.