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Derivatives

Standard Chartered Plans Kwacha Options

Standard Chartered plans to structure options on the Zambian kwacha as part of its effort to develop an African foreign exchange options market. It started offering options on the Kenyan shilling last year, according to an official familiar with the initiative. He added that plans to structure options on several African currencies, including the Tanzanian shilling, have recently been approved.

Local institutions and corporates can use the options to hedge currency risk, and most of this activity is in local crosses, such as against the Botswanan pula/South African rand.

Similarly, African institutions are also turning to currency options on the group-of-seven currencies as a means to increase returns, the official explained. For example, local institutions could enter a structured transaction in which they put cash on deposit and sell a dollar call/euro put. Standard Chartered's counterparty exposure is reduced because it has access to the cash on deposit.

The bank hopes to grow this business by increasing the number of African clients that use options. Once this happens, Standard Chartered hopes that investors in the G7 countries will take the other side of the fx positions.

Another player looking to break into this market is Barclays Capital. "We currently do not offer African currency options but we plan to offer both local and group-of-seven denominations to selected markets imminently," said a company official.

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