Kenya could have a currency futures and derivatives market, as early as February 2010 if proposed plans by an international consortium are fulfilled.
The Global Board of Trade (GBOT) is in talks with local stakeholders on the best ways to introduce the latest and most optimal instruments in foreign exchange (forex) investments in the country.
According to GBOT directors who met with Central Bank of Kenya officials in November, the GBOT complete asset class exchange which is established in Mauritius, will be the first exchange in the African continent to quote regional currencies including the Kenyan and Ugandan shillings against world majors,.
“Currency derivatives are risk management tools used in the forex and money markets the World over. These are devised for hedging risks and act as an insurance against unforeseen and unpredictable currency and interest rate movements,” said Joseph Hadrian Bosco, GBOT’s Chief Operating Officer in a statement copied to APA on Tuesday.
GBOT will be partnering with DCDM, the leading Pan African consultancy firm, to build capacities of market participants in Africa. These include financial institutions, government entities, multinationals and even individuals who will be co-opted in as members to trade.
The firm through its clearing house has appointed three international banks for funds settlement and other fund management activities. Members shall in turn have settlement accounts with the designated clearing bank.
Trading in currency forms the largest financial market in the world. According to the Bank of International settlements (BIS), the average daily turnover in global currency markets is approximately US$ 5 trillion.
“Given the potential for economic growth in the Pan-African region, the introduction of exchange-traded currency futures could assume a significant role in the growth of local financial markets”, said Bosco adding that GBOT will initially introduce three futures contracts i.e. near month, middle month and far month.
Currency derivatives occur in two forms, Forward contracts which are traded Over the Counter (OTC) and Futures contracts that are mostly exchange-traded.
Though the Exchange-traded futures serve the same economic purpose as OTC forwards, the two are different.
An entity entering into a forward contract agrees to transact at a predetermined (forward) price on a future date.
On the maturity date, the obligation of the Bank equals the forward price at which the contract was executed. Only on maturity does the money change hands.
In the case of an exchange-traded futures contract, cash flows on a daily basis on account of the individual parties’ mark to market obligations.
Source African Press Agency
loading...
