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Portfolio > ETFs > Broad Market

OTC Derivatives Growth Continues: Foreign Exchange

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BASEL, Switzerland (–The Bank for International Settlements issued its semi-annual report on over-the-counter derivatives, disclosing that the notional value of outstanding OTC contracts ended the first half of 2003 at US$169.7 trillion, up 20%, which is 7% more than its rate of increase in the preceding half-year period.

The Nov. 12 report made special mention of the “buoyant” OTC business in foreign exchange markets.

The forex segment “is an area that has not seen double-digit growth since the BIS began collecting these statistics. However, in the first half of 2003, outstanding contracts rose by 20% for this risk category.”

Breaking that category down by currency, the report observed that notional amounts of contracts involving the U.S. dollar expanded by 18%, contracts involving the euro by 27%, those involving the yen by a modest 2%.

There was growth across all but one risk category. The exception was gold, where producers engaged in extensive de-hedging due to the low interest rates. Notional amounts of such contracts fell by 4%, and their gross market value fell by 22%.

Forward rate agreements returned to growth in this half-year after a decline in the second half of 2002.

Among equity derivatives, the BIS reported a 21% growth in contrast to the meager 4% growth of the preceding half-year. “European dealers have been particularly active in this area, accounting for practically all of the increase in notional amounts outstanding.”

Interest-rate swaps remain easily the largest single group of OTC derivative products. The euro-denominated swap market continues to outperform those denominated in other currencies, and at the end of June, it’s the notional value of its outstanding contracts stood at US$40.7 trillion, a growth of 29%, which is a rate similar to that of the previous period.

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