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Archive for April, 2014

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Posted On 18  Apr  2014  

FX Forwards are not the same as FX Spot

There are traders who believe that if one holds a FX spot position and simple rolls each day and rolls a FX Forwards position the result should be the same. For afterall, FX Forwards simply capture the interest rate differential between two currencies until the forward dates and as there is no free lunch the the financial markets the outcomes should be the same. The concept of free lunch implies taking the same risks. The risk of having a spot position are not same as a forwards contract. It should be obvious, but the reasons are: A forward contract settles at a future date  and the spot date to the future date yield difference influencing the price. The spot price moves in response to current events. As the settlement date on the forward comes closer and closer to the spot price the two instruments should start to move in tandem,

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Posted On 02  Apr  2014  

Climate Change and failure of markets

IPCC new report on Climate Change should be of concern to us all. The economic and social costs cannot be understated. Anyone who thinks that humans are tough and adaptable species because we can survive in all the extreme conditions on our planet should be laughed at. Humanity needs nourishment to survive. Today, about half of the global population is underfed and undernourished.  With the population expected to grow to 9 billion any large scale disruption to our food supply will mean that perhaps a very high percentage of the population will be at risk. No one really knows what the impact will be on global food resources as ocean acidity increases and weather patterns change. What we do know is that rapid change in climate is not good for humanity and certainly not good for plants and animals. Climate change may not be an existential threat to humankind. It