FX Derivative Speculator Description
The Foreign Exchange Derivative Speculator is a risk modeling tool that illustrates the economics and accounting of long and short speculative derivative positions, including forwards, put and call options, and zero cost collars.You can compare and contrast the payoff profiles of each hedge instrument to analyze the cash flow and financial reporting implications under virtually any FX scenario.
The visual output includes a chart of the starting, ending, and potential payoff profile of the selected derivative interment, a ranking of the the 3 derivatives side-by-side, and the journal entries and t-accounts along with authoritative references to U.S. generally accepted accounting principles (GAAP). In the background, our data engine performs complex calculations based on theories such as interest rate parity and the Garman-Kohlhagen option pricing model, allowing you to focus solely on the end results.
There are 14 derivative inputs used to formulate a detailed comparative analysis in 3 easy steps. The first step is to select (1) a Long (buy) or Short (sell) position in the currency and input the related variables of (2) Functional Currency, (3) Foreign Currency, (4) Derivative Notional Amount, (5) Beginning Exchange Rate, (6) Currency Quoting Convention, (7) Start Date, (8) End Date and (9) the Day Count. Step two is to input the derivative pricing variables of (10) Domestic Interest Rate, (11) Foreign Interest Rate, (12) Implied Volatility, and (13) the Collar Range. The third and final step is to forecast (14) the ending exchange rate to see how positive and negative changes in exchange rates impact the cash flow and financial reporting of your selected derivative instrument.
This unique pricing tool will show you the mechanics of the most common derivatives instruments that are used in foreign exchange risk management. If you are curious how the upfront premium of an option is valued and accounted for, this tool will show you. If you want to explore how comparatively higher and lower interest rates determine the forward rate, the economic analysis will do the math for you. If you are interested in how a zero cost collar blends characteristics of forward and options, this tool outlines the details. The Foreign Exchange Derivative Speculator puts a powerful pricing tool directly in your hands to help you make informed FX hedging choices.
Question to Consider
- Would you like to know how two options can be combined to create a zero cost collar with no upfront premium?
- Are you interested in seeing how the 6 pricing variables of a vanilla option contract impact the value of the option?
- Do you know how interest rate parity dictates the forward point premium or discount applied to the “all-in” forward rate?
- Can you picture how the accounting for an option and a forward contract impacts differ from inception to expiry?
- Does your organization know how the floor and cap of a zero cost collar can limit your range of economic outcomes?
- If you would like to explore the answers to these questions in detail, the Derivative Speculator will help you find solutions.