lehman brothers foreign exchange training manual

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Press question mark to learn the rest of the keyboard shortcuts Log In Sign Up User account menu 23 Anyone got a copy of the Lehman Brothers Foreign Exchange Training Manual. The link in the wiki no longer works. The link in the wiki no longer works. Last look, counterparty credit restriction and lack of accountability when things go awry remain moot points for liquidity takers. Here is what they teach their FX staff. The risk arising from the possibility that the counterparty may default on amounts owned on a derivative transaction has become a focal point for liquidity providers, prime brokerage, and even Tier 1 banks whose liquidity is aggregated by non-bank institutional providers which connect retail trading platforms via a single point connection. Although the bankruptcy filing missed the deadline, many dealers honored the trades they made in the special session. The spectacle continued throughout the day and into the following day. Lehman shares tumbled over 90 on September 15, 2008. In Japan, the Japanese branch, Lehman Brothers Japan Inc., and its holding company filed for civil reorganization on September 16, 2008, in Tokyo District Court. On September 17, 2008, the New York Stock Exchange delisted Lehman Brothers. In Europe, the Quantitative Asset Management Business has been acquired back by its employees on November 13, 2008 and has been renamed back to TOBAM. Lehman Brothers became a victim, in effect the only true icon to fall in a tsunami that has befallen the credit markets. This is the most momentous bankruptcy hearing I’ve ever sat through. It can never be deemed precedent for future cases. It’s hard for me to imagine a similar emergency.”. We did not support the transaction because there had not been enough time to properly review it. lehman brothers foreign exchange training manual, lehman brothers foreign exchange training manual, lehman brothers foreign exchange training manual typewriters, lehman brothers foreign exchange training manual pdf, lehman brothers foreign exchange training manuals, lehman brothers foreign exchange training manual 2017. ” If you’re looking to find “insider strategies”, you’ll be disappointed. On the other hand, if you want to know what the actual industry considers starting point material (hint: it’s not babypips), this document is the real deal. For understanding big money perspective, don’t forget that what is not in the manual is just as important as what it does contain.” This, if it goes ahead, would go some way to resolving the liquidity crunch that faces many OTC firms This can only be a good thing. The future is bank-free and electronic Today’s diatribe by those lamenting the fall of the branch is not replicated by the trading desk bound Millennials. This is absolutely the wrong way to look at it as liquid markets such as FX, centralization, technology and electronic trading are the future We look at what the current situation is and what may change in the near future when looking for bank FX liquidity from proper partners Tier 1 banks making it very hard for FX brokerages to get accounts Despite FCA or CySec regulation, and plenty of capital, the answer is a resounding no, even from the largest interbank FX dealers Here is how to influence the banks The giants of our industry should take heed and go forth The one and only. By continuing to use our site we assume that you are ok with this. Discover everything Scribd has to offer, including books and audiobooks from major publishers. Start Free Trial Cancel anytime.Browse Books Site Directory Site Language: English Change Language English Change Language Quick navigation Home Books Audiobooks Documents, active. To get more targeted content, please make full-text search by clicking here.CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE TABLE OF CONTENTS (continued) CONTENTS. LBEX-LL 3356482 CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE TABLE OF CONTENTS (continued) CONTENTS. PAGE SECOND ORDER GREEKS. 106 FACTORS AND THEIR EFFECTS ON OPTION VALUE. 107 EXOTIC OPTIONS. 107 TRADING CONVENTIONS. 110 TRADING STRATEGIES. 111 GLOSSARY. 123 (m) LBEX-LL 3356483 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE FOREIGN EXCHANGE SPOT INTRODUCTION 1 LBEX-LL 3356484 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE FX SPOT AN INTRODUCTION TO FOREIGN EXCHANGE SPOT TRANSACTIONS INTRODUCTION Money has been around in one form or another since the days of the Pharaoh, replacing former systems of bartering. But, as history progressed and scores of countries generated their own individual monies, Middle Eastern money changers found a market exchanging coins of one culture for those of another-the first foreign exchange 'market'. Over the ages, the form of money changed from coin form to bill form, the latter flourishing in the Middle Ages. This accord allowed currencies to fluctuate by one percent on either side of the standard, mandating that respective central banks intervene if the fluctuation was outside of those limits. Although the Bretton Woods accord accomplished the goals of its charter tore- establish economic stability in post-war Europe and Japan, it ultimately failed. Now, hedge funds, banks, brokerage houses, corporations, and individuals all participate in the foreign exchange market either on a speculative basis, to facilitate transactions, or to hedge against currency risks associated with their core business. Foreign exchange is a business of exchanging one currency for another. This exchange can take two basic forms: an outright or a swap. When two parties simply exchange one currency for another the transaction is an outright. For example, if one party gives the other dollars for Euros, they have completed an outrighttransaction. If this exchange takes place for immediate delivery, it is called a spottransaction; if it takes place for forward delivery, it is called a forward. http://www.diamondsinthemaking.com/content/dell-4409-manual Two parties can also agree to exchange and re-exchange one currency for another. For example, one party gives the other dollars for Euros for immediate delivery and simultaneously agrees to re-exchange Euros for dollars at a specified rate at some time in the future. These transactions are called swaps.The two parties must agree on the two currencies, the amount of one currency, the settlement date, and the exchange rate. The amount of the second currency will be derived from a calculation involving the amount of the first currency and the exchange rate. Outright Transaction: the exchange of one currency for the other at the outright rate of exchange. 3 LBEX-LL 3356486 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE VALUE DATES The value date is the day the two parties actually exchange the two currencies. It is impractical, in most circumstances, for the value date and the trade date to be the same. The forward value date is usually required to allow both parties time to arrange for payments which often occur in different time zones. This is commonly referred to as value for spot. The spot exchange rate is the benchmark price the market uses to express the underlying value of the currency. Rates for dates other than the spot are always calculated relative to the spot rate. Listed below are the various value dates available in the market-they are all determined relative to the deal date. Assume the deal date is Monday, December 12. Assuming Today is Monday, December 12, Spot Would be December 13. 4 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. LBEX-LL 3356487 CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE QUESTIONS Using the trader's calendar below, indicate the date on which each of these trades would settle. Assume you are at a New York bank dealing in currencies against the US dollar. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE ANSWERS 1) December 4 2) December 5 3) December 5 4) December 6 5) December 6 CREDIT AND SETTLEMENT RISKS Foreign Exchange contracts represent a Credit Risk between Lehman and the client. The risk is equal to the replacement cost of any deal in the event that the client cannot fulfill its obligations. For spot transactions, the exposure is for only the two days between the trade date and the value date. However, for forward contracts the exposure is greater because the time between the trade date and the value date is greater. If the client cannot fulfill the contract, Lehman must replace the forward at the rate currently available and, therefore, stands to lose the 4 mark-to-market gain. Since the bank reports mark-to-market gains as income, client nonperformance has bottom line implications. Settlement Risk is another form of credit risk which can potentially be much greater. Each currency deal actually involves two settlements, since each currency settles in its home country. Since the exchange of currencies cannot be simultaneous due to time differences, each party is at risk for the time period between the two settlements. For example, assume you have sold JPY against the USD. The JPY will settle in Japan-your JPY account will be debited and the JPY delivered to the bank of the buyer-hours before your dollar account in New York is credited. Your risk is that you deliver JPY to the Japanese clearing, but the bank which owes you dollars in return for your JPY declares bankruptcy by the opening of business in NY. You have paid out the JPY but will not receive your dollars in exchange. 6 LBEX-LL 3356489 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. It is imperative that you remember these conventions. The arithmetic way to express these quotations will always have the base currency in the denominator and the rates currency in the numerator. Do not allow this representation to confuse you when actually saying the currency pairs. This is simply how they would look mathematically. The following will illuminate this point. Since two currencies are involved, one has to be quoted in terms of the other. \X!hen we say that the exchange rate for the yen against the dollar is 123.50 yen, we are valuing the dollar in terms of the yen-123.50 yen per dollar. The arithmetic expression tells you which currency is being quoted in terms of the yen. The way the two currencies are referred to verbally will usually tell you which one is the base, since the base currency is usually stated first. For example, when the two currencies involved are the US dollar and the yen, the relationship is called dollar-yen-meaning the number of yen per dollar. This tells you that the dollar is the base and that the rate will be quoted in terms of yen per dollar. Numerator Terms Currency Denominator Base Currenc 8 LBEX-LL 3356491 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. For example, Canadian dollars are usually quoted in European terms, that is, the number of Canadian dollars per one US dollar. To take the reciprocal: 1 I 1.5672 - 0.6381 0.6381 USD per 1 CAD 10 LBEX-LL 3356493 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. For example, if dollar-yen opened at 124.10 and closed at 124.60, you would say that the dollar strengthened since one dollar buys more yen at the close than it did at the open. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE ANSWERS 1. The Dollar weakened and the Pound strengthened, since one Pound will buy more Dollars. The Dollar closed down for the day. The Yen closed up for the day. The Dollar closed up for the day. In the Sterling market, one pip is 0.0001 but in the Yen market, one pip is 0.01. 13 LBEX-LL 3356496 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE SHORTCUT On the preceding page, you calculated the profit and loss due to a change in the rates. There is a shortcut method to calculating these gains and losses. However, in the market, spreads are generally comparable between currencies on a percentage basis. In general, greater uncertainty among traders is reflected in wider spreads in the market. The size of the spread reflects: o The liquidiry of that currency-the more liquid the currency, the narrower the spread.They buy the base currency on the left side of the quote and sell the base currency on the right side of the quote. You have the USD and need the CHF, so you must sell the USD and buy the CHF. You have the USD and want the Sterling, so you must buy the Sterling. The market-maker will sell them to you at the offered (right) side of the market. 17 LBEX-LL 3356500 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE QUESTIONS On which rate wouldyou deal in each ofthe problems below? 1. You have just received a 1,000,000 GBP payment. You want to convert these pounds into dollars. You want to sell GBP and buy USD. You want to buy AUD. You need to buy SEK to make the payment and sell USD. You want to sell JPY and buy USD. You will deal on the offered (right) side of the market; that is where the trader is selling USD. 19 LBEX-LL 3356502 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. Decide whom and at which rate the client will deal at. GBP: JPY: NOK: CAD: EUR: 20 LBEX-LL 3356503 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE CROSS RATES So far, the exchange rates we have examined have involved the dollar as either the base or the terms currency. We will look first at how to derive them algebraically and then at a shortcut rule. With cross rates, it is crucial to remember the base currency conventions. Difforent terms (one currenry is quoted in US terms and the other in European terms). LBEX-LL 3356505 CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE The short cut rule is: If two currencies are quoted on diffirent terms, multipfy one rate by the other. 23 LBEX-LL 3356506 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. If two currencies are quoted in different terms, multip!J one rate by the other. 25 LBEX-LL 3356508 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. In this cross, the Swiss Franc is the base and the yen is the terms currency. Now work with what you know. Since CHF is the base, you know that 1) the currency being traded is the CHF, so 2) the bid and offer of the cross are for CHF. You also know the value of CHF and JPY relative to the dollar. You will use this information to derive the value of the CHF in terms of the JPY. Since CHF and JPY are both in European terms, you divide the base of the cross into the terms of the cross to get the cross rate-CHF expressed in terms ofJPY. This is done by making the spread as wide as possible. So, If you are calculating a spread of currencies on the same terms, i.e. dividing, you would make the widest spread by dividing the larger number by the smaller number and the smaller number by the larger number. Doing so makes minimizes the bid and maximizes the offer. In our example this is done by dividing 125.06 by 1.5031 and 125.09 by 1.5026. Similarly, for currencies on different terms, where one multiplies the currencies to get the cross rate, one minimizes the bid by multiplying both of the smaller numbers against each other and both of the larger numbers against each other. We will see this is the next example. EXCHANGE RATE MOVEMENT REVISITED FOR CROSSES Cross rates also move such that one currency strengthens or weakens vis-a-vis the other one. As with dollar-based currencies, it is easier to conceptualize when you think of cross rate moves in terms of the base. Similarly, a move from 83.24 to 83.00 is a weaker CHFI stronger JPY rate. 27 LBEX-LL 335651 0 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. LBEX-LL 3356511 CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE SUMMARY DIFFERENT TERMS Bid: buy the base currency and sell the terms, multip!J the two rates to get the cross. Offer: sell the base currency and buy the terms, multip!J the two rates to get the cross. SAME TERMS Bid: buy the base and sell the terms, divide by the base of the cross. Offer: sell the base and buy the terms, divide by the base of the cross. 29 LBEX-LL 3356512 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE SHORTCUTS Although it is essential to be able to derive the cross rates, there are times when you cannot take the time to think-you have to be able to react immediately. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE TRADING CONVENTIONS AMONG MARKET MAKERS An outright foreign exchange market is a two-sided foreign exchange quotation, consisting of two rates: the rate at which an institution will buy the base currency and the rate at which the same institution will sell the base currency. Market-makers, primarily major multinational commercial banks, stand ready to buy and sell given currencies against the dollar. Lehman Brothers will deal in any currency where local authorities have not placed restrictions on their currency. 33 LBEX-LL 3356516 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE REVIEW PROBLEMS 1. Assuming the client had called Lehman for the above quotes, at what rate would you deal. The old Yen trader left for Monaco with a square position. You do the following: a) Citi calls for a JPY quote. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE FOREIGN EXCHANGE FORWARDS INTRODUCTION 39 LBEX-LL 3356522 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE FX FORWARDS AN INTRODUCTION TO FOREIGN EXCHANGE FORWARDS INTRODUCTION Investors in currencies have diverse needs and interests in the market. Forward transactions are defined by a settlement date beyond the standard two-day spot settlement. Forward settlement can range anywhere from 3 days to three years. It is a derivative product consisting of a spot transaction combined with a forward spread. Forward points may be either positive or negative, and are a function of the interest rate differential between the two currencies in which you are dealing and the maturity of the trade. Forward points do not represent an expectation of the direction of a currency, but rather the interest rate differential. 40 LBEX-LL 3356523 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE CALCULATING THE FORWARD RATE In the first section, we discussed outright exchanges of one currency for another for spot settlement. Now we will focus on the pricing of outright exchanges for forward dates, or dates other than spot. The rate of exchange for any date other than spot is a function of spot and the relative interest rates in each currency, because the assumption is that any funds you have will be invested in a time deposit of that currency. The forward rate is the rate which neutralizes the effoct ofdiffirences in the Eurocurrenry interest rates. If this were not the case, investors and speculators would always buy and invest in the high interest rate currency, eliminating their exchange rate risk with the forward contract. An example will illustrate this. Your investment parameters do not permit you to be exposed to exchange rate risk, so you must set the rate at which you will re-convert the Sterling into dollars at the time you enter into the investment. There is a 3 interest rate differential between the dollar and Sterling market, since you can earn 2 if you invest in the Eurodollar market for the year or 5 if you invest in Euro Sterling. In an arbitrage-free market, the forward rate will eliminate the 3 interest rate differential between the dollar and Sterling. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE By buying? at 1.5500 and selling it at the forward rate of 1.5061, the benefit of the 3 interest rate differential is completely eliminated. We now know that 1.5061 is the equilibrium forward rate. At any other rate, there is an arbitrage opportunity between the forward market and the Eurocurrency market. If the rate were higher, say 1.53, you could arbitrage (take advantage of) the discrepancy between the FX market and the time deposit market. To do so, you would buy. Since these are highly liquid, closely watched markets, arbitrage is extremely rare. It is important to note that the forward rate reflects the current interest rate, and it assumes that you invest at that rate. If the interest rate differential changes between the time you do the forward and the time you invest your funds, you would experience a gain or a loss. For example, assume you do a forward in Canadian dollars with a 1 interest rate differential priced into the contract. The instant after you do the forward, the Canadian rate drops 10 basis points. Ifyou do not earn the interest rate difforential implied in the forward rate, you will expen.ence a loss or a gain. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE Rather than using the aforementioned cash flow analysis technique, it is more common to think of the forward rate in terms of how much it differs from the spot rate. Normally, you will know the spot rate and the forward points (discussed momentarily), and given these two pieces of information you can derive the forward rate. The difference between the forward rate and spot is referred to as forward points. GBP: Spot Forward Points Forward Rate 1.5500 0.0439 1.5061 JPY: 122.50 0.2287 122.2713 AUD: 0.5575 0.0048 0.5527 The difference between the spot and the forward rate is the forward points. In the example we have just seen: GBP: Spot Forward Rate Forward Points 1.5500 1.5061 0.0439 JPY: 122.50 122.2713 0.2287 AUD: 0.5575 0.5527 0.0048 The forward rate neutralizes the interest rate differential, making you indifferent as to whether you buy a currency spot or forward. 43 LBEX-LL 3356526 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE Although you are normally given forward points, it is a useful exercise to know how to calculate them.Let's see how this works in the following examples: Let's say that you-the client-want to buy GBP forward against the USD. We will assume that when you buy Sterling forward against dollars, you will have a dollar deposit for the period from today to the forward date. In our example, dollar interest rates are lower than Sterling interest rates, so you will not earn the differential during that period. Therefore, you will earn the forward points. In the case of Sterling, that means you will buy the.But, since dollar interest rates are higher than yen interest rates in our example, you will earn the interest rate differential so you must pay the points. The points are 22.87 points: 45 LBEX-LL 3356528 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. Since the AUD deposit rate is higher than the dollar one, you will earn the differential, so you must pay the points. To get more targeted content, please make full-text search by clicking here. If you theoretically earn more in one currency than the other due to the interest rate differential, the forward exchange rate will exactly offset this gain. The interest rate differential, adjusted for time, determines the forward points. The forward points reflect only today's difference in interest rates; they are not an indication of what the future spot or interest rates will be. 47 LBEX-LL 3356530 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE SAMPLE PROBLEMS Given the information below, (a) Calculate the forward points and the forward rate and (b) State whether you would earn or pay the points. 1. You, the client, wish to sell CAD forward one year against the USD. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE 2. You wish to buy CHF forward one year against the USD.CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE SAMPLE PROBLEMS Given the information below, determine (a) if you would pay or earn the points and (b) what the forward rate would be. 1. You want to buy Sterling forward against the dollar. The forward points are 0.0542. 2. You want to sell Euro forward against the dollar. The forward points are 0.0756. 3. You want to buy Yen forward against the dollar. The forward points are 1.05. 53 LBEX-LL 3356536 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. You will receive fewer Yen per dollar at the forward rate than you would at the spot rate. 54 LBEX-LL 3356537 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE FORWARD DATE CONVENTIONS Trading date conventions are the same as they are in the Eurocurrency market, and they dictate what the exact straight dates are. Dealing for proper value dates is imperative. Not accounting for interest rate differentials, even for a few days, can be an unnecessary expense. If the spot value date were July 6th, the forward date for each of the regular forward periods would be the sixth of the appropriate month unless the sixth were a holiday or a weekend. They will also do odd-dates with other dealers with whom they deal regularfy, but it is more common to trade straight dates. Straight dates are limited to spot against one month, two months, three months, six months, nine months, and twelve months. 55 LBEX-LL 3356538 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE SAMPLE PROBLEMS Using the calendar on the following page, answer these questions. Assume today is Wednesday, July 3rd. However, the calendar is opened to July 8th, since traders open their calendars to the spot date (2 business days after the trade date). 1. What is the two-month forward date? 2. What is the one-month forward date? 3. If spot were July 31st, what would the two-month forward date be? 56 LBEX-LL 3356539 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE ANSWERS 1. Monday, September 9th 2. August 8th 3. September 3Qth (following the end-to-end rule) 58 LBEX-LL 3356541 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. Some clients may do swaps because they have foreign currency receivables collected in advance of their payables, and want to make use of the non-foreign currency equivalent in the meantime. They may be used to hedge interest rate risk. Or, some clients may not want to take delivery of a particular currency. So, if they are due to receive, say JPY, on a certain date, they may Sell JPY for spot and buy it forward, giving them the ability to lock in profits at that level.Trade ideas are more useful in interest rates also because their movements aren't as volatile as those of spot. This concept is explained further later in this chapter. This leaves us short USD Evaluation: and longJPY until the far leg of the trade. Each day, we fund our short USD position at 0.45 per day, and earn 0.95 per day on forward leg. Therefore we are looking for rates to move lower. Points moving in our favor would effectively shrink or eliminate the large bid-ask spread. 67 LBEX-LL 3356550 Confidential Treatment Requested By Lehman Brothers Holdings, Inc. Use the above spot rates and forward points. Why? 3) If Sep 03 Eurodollar futures are trading at 97.93, what is the expectation for 3 month rates at that time. Since we said that 3 month rates are typically 10- 12 points above overnight rates, we would say that the market expects overnight rates to be approximately 1.95- 1.97 in September 2003. 4. We would over lend, or sell and buy Euros to match this view. Effectively, we would be borrowing Euros at the future date, so it makes sense that we would be looking for lower rates. On the other side, we are effectively lending out USD in the future, so we would be looking for an increase in USD rates. 5. Buy and sell USD, sell and buy CAD for the same reasons as above. CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS SOURCE: LEHMAN LIVE FOREIGN EXCHANGE SWAPS INTRODUCTION 70 LBEX-LL 3356553 Confidential Treatment Requested By Lehman Brothers Holdings, Inc.Swap transactions are based on the exchange and re-exchange of two currencies for two different value dates. Although dealers will do odd-dated swaps with each other, many will be for straight dates. An example of a straight date swap may include the 1-month or 2-month swap, where the far leg falls on a common date across the investing community (1 month from trade date, for example), and where there is likely to be greater liquidity for the customer. An odd-dated swap will include all other dates not falling on a straight date. A typical swap would be to buy Yen spot (the exchange) and sell it forward one year (the re-exchange).