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New Index Allows Investors To Trade Single Currency

by Phillip Morton, Investors

06 December 2006

International Index Company Limited (IIC), a provider of independent bond and credit derivative indices, has announced the launch of a new family of currency indices, the iBoxxFX trade-weighted FX indices.

According to IIC, the indices break new ground by allowing investors to trade a single currency.

“In addition to trading bi-lateral currency pairs, as FX market participants have always done, customers can now trade single currencies or specific macro-economic blocks," explained David Mark, Chief Executive of IIC.

"This will facilitate the development of structured products based on the indices in this increasingly important asset class," he added.

IIC says that by allowing investors to express a view on one currency rather than taking bilateral views with single currency crosses, the underlying is less volatile than individual cross rates, market access is simple and investors are able to make payments in just one currency.

IIC believes that this is the first step towards the establishment of an industry wide benchmark and further growth in the FX index business.

The Indices are calculated tick-by-tick from Monday morning in the Far East to Friday’s close on the US west coast. The indices are based on each central bank’s basket exchange rates, which track the performance of a currency against a defined basket of currencies. The following currency indices are calculated and published: EUR, USD, GBP, JPY, CHF, AUD, NZD, CAD, NOK, and SEK. Other currencies may be added at a later date.

Each basket is limited to the five currencies with the largest weights in the relevant central bank’s officially published index. The respective weights are scaled up to 100% and used to calculate the geometrically-weighted indices.

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