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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Article
Toxic Currency Options in Poland as a Consequence of the 2008 Financial Crisis
Author(s)
Kamil Liberadzki
Full-Text PDF
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DOI:10.17265/1537-1506/2015.12.001
Affiliation(s)
Kamil Liberadzki, Ph.D., junior professor, Institute of Finance, Warsaw School of Economics, Warsaw, Poland.
ABSTRACT
The paper is on toxic foreign exchange options problem which occurred in Poland just prior to and after the outbreak of the recent crisis. Especially Polish enterprises were severely stricken by transactions on fx and interest rate derivatives contracted with their banks. Poland was the only EU country which did not precipitate into recession during the financial crisis beginning in 2008. However, the toxic fx and interest rate derivatives transmitted the shockwaves from global financial markets into Poland. Huge dimensions of losses resulted in conflicts between banks and their customers, who claimed just being cheated by the financial institutions. The article deeply researches into reasons for such developments on Polish fx over-the-counter derivatives market. As a case study, an authentic strategy has been presented. The contract was concluded between the construction company and one of the biggest commercial banks in Poland. Because the case study may be representative for many other cases, the analysis includes exact pricing of option strategy and therefore reveals inequality of the contract. The consequences of non-implementing the MiFID directive in the context of derivatives offering to non-financial customers were also touched in the paper.
KEYWORDS
toxic foreign exchange options, MiFID, risk reversal, foreign exchange portfolio hedging, exotic options, barrier options, option strategies
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References
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