Currency Warrants

A currency warrant is a derivative - its value is derived from another underlying asset - in this case an exchange rate. The value of a Currency Warrants rises and falls with movements in the exchange rate. When your clients use Currency Warrants their exposure to the exchange rate movement is leveraged because the warrant price will move to a greater degree than the movement in the exchange rate itself. 

Currency Warrants give your clients the right to exchange an amount of foreign currency for Australian dollars at a particular exchange rate (the exercise level) on or before a specific date (the expiry date).

When your client exercises the warrant, they take up their right to buy or sell the currency.

Macquarie Equity Warrants give your clients:

• the ability to trade based on their view about the $A/$US exchange rate
• the potential to profit from currency fluctuations
• the ability to hedge against adverse movements in the currency
• a highly liquid investment, because they are listed on the Australian Stock Exchange.

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Call and put warrants

Currency warrants can be call or put warrants. This means you can trade to take advantage of either a positive or a negative view about the future direction of the $A.

In the case of the $A/$US exchange rate, call warrants::

• give your clients the right to buy $A
• are used when they believe the $A/$US exchange rate will rise, and they want to benefit from that movement.

Put warrants:

• give your clients the right to sell $A
• are used when they believe the $A/$US exchange rate will fall, and they want to benefit from the fall.

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Characteristics of Currency Warrants

Macquarie Currency Warrants are based on the exchange rate between the Australian ($A) and US dollar ($US).  They give your clients:

• a cash payment when the warrant is exercised or expires
• can only be exercised on the expiry date (European style)
• are traded on the Australian Stock Exchange (ASX)
• can be bought or sold through an ASX derivatives accredited broker or online.

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Information for your clients

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How Currency Warrants work – an example

If you or your client believes the $A/$US will rise, you may wish to back that view by buying call warrants over the $A/$US exchange rate. An example of a call warrant over the $A/$US exchange rate is shown below:

This warrant gives your client the right to pay $US5.20 and receive $A10.00 on 30 June 2002.

If the $A/$US exchange rate moves $US5.20 before 30 June 2002, the value of the warrant increases.

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How leverage boosts return

Currency warrants give a degree of leverage - a small percentage change in the exchange rate can lead to a large percentage change in the value of the currency warrant.

For example, if your client bought a Macquarie call Currency Warrant at an exercise level of $US0.55, the potential returns could be::

As you can see from the table leverage works in both directions, so a fall in the exchange rate would also cause a greater percentage fall in the value of the warrant.

Where we provide any advice on this webpage, it has been prepared by Macquarie Bank Limited ABN 46 008 583 542 (Macquarie) without considering your objectives, financial situation or needs. Before acting on any advice on this webpage, you should consider its appropriateness to your circumstances and, if a current offer document is available, read the offer document before acquiring products named on this webpage.

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