Spot Forex: Emerging Countries in the Forex Market

China

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From 1994 until mid-2005, the RMB was informally pegged to the USD. This policy was acclaimed during the Asian financial crisis of the 1990s, as it prevented competitive devaluations. In 2003, the policy came under criticism by the U.S. as the falling value of the dollar caused the value of the renminbi to fall, which led to pressure from the U.S. and other countries to increase the value of the RMB to encourage imports to China and decrease exports. In 2005, the peg to the USD was removed. The RMB is now pegged to a variety of currencies, dominated by the USD, JPY, EUR and KRW. As the government continues to reform its economic policies and strengthen its banking systems, there should be a realistic call for opening up spot trading. However, this will take some time. There is no RMB forward market, only spot FX. The non-deliverable forward market is not traded onshore. There is no interbank money market beyond four months. The bond market is restricted to designated onshore financial institutions and is illiquid. Currency Chinese renminbi Common name Yuan Quotation Convention 2 decimal points Most liquid cross USD/RMB, USD/CNY (Quoted as both RMB and CNY) Best Liquidity 0130-0230 GMT Average Bid/Offer * 500 pips (8.2270 / 8.2770) 1 pip 0.001 RMB and CNY Average Daily Trading Volume U.S. USD 200m Settlement Transaction plus one day (T+1)

Czech Republic

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The Czech koruna has been a floating currency since 1997, when financial and political crises shattered the country's image as one of the most stable and prosperous post-Communist nations. The CZK was forced out of its fluctuation band due to fears that the country's account deficit would become unsustainable. After the central bank unsuccessfully spent USD 3bln to boost the currency, the bank decided to let the koruna float. In 1999, the Czech government established a restructuring program, focused on encouraging the sale of firms to foreign companies. Growth has been boosted by exports and strong recoveries in foreign and domestic investments. Admission to the EU has also spurred growth and structural reform. Foreign investors have unrestricted access to the local markets. The banks of London are very active in the Czech Republic's currency market, and are estimated to account for over half of the daily turnover. The deposit market is very liquid, and foreign investors are very active. Currency Czech Koruna Quotation Convention 3 decimal points Most liquid cross EUR/CZK Best Liquidity 0900-1700 GMT Average Bid/Offer * 40 pips (32.5220 - 32.5260) 1 pip .001 CZK Average Daily Trading Volume EUR USD 2-3bn Settlement Transaction plus two days (T+2)

Hong Kong

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Since 1983, the HKD has been pegged to the USD. Hong Kong's currency board system ensures that the country's entire monetary base is backed with USD at the linked exchange rate, so a bank can only issue a HKD if it has the same amount of USD on deposit. In 2005, the upper and lower interest rate limits were adjusted to narrow the interest rate gap between Hong Kong and the U.S. No distinction is made between local and offshore trading. FX options are available. There are no spot or forward trading restrictions, but documentation is required. In 2005, Hong Kong began to open up the NDF market. There is a liquid government bond market (Exchange Fund Notes) with maturities of up to 10 years. Interest rate options and swaps are liquid up to 10 years. Currency Hong Kong dollar Quotation Convention 4 decimal points Most liquid cross USD/HKD Best Liquidity 0130-0830 GMT Average Bid/Offer * 15 pips (7.7985 / 7.8000) 1 pip 0.0001 HKD Average Daily Trading Volume USD 1.5bn Settlement Transaction plus two days (T+2)

Hungary

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After the constitutional amendment of 1989, which established Hungary as a democracy, the forint saw annual inflation figures of 35 percent over three years before it was stabilised by market economy reforms. The relatively high value of the forint has put the export-oriented Hungarian industry at a disadvantage against foreign competitors with lower-valued currencies. The forint has been a fully convertible, and generally floating, currency for capital and current account transactions since 2001. As part of Hungary's integration into the EU, the forint is scheduled to be phased out from 2010 to 2012. Currently, there are questions surrounding whether the EU-mandated low inflation rates and reduced foreign debt goals can be met by 2010, which could make Hungary one of the last countries among the current EU members to adopt the Euro. Currency Hungarian Forint Quotation Convention 2 decimal points Most liquid cross USD/HUF & EUR/HUF Best Liquidity 0900-1600 GMT Average Bid/Offer * 200 pips USD/HUF (208.50 - 210.00) 300 pips EUR/HUF (267.50 - 270.50) 1 pip .01 HUF Average Daily Trading Volume EUR 500-700m Settlement Transaction plus two days (T+2)

India

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The exchange rate of the rupee is set by the interbank market. Since 2000, this has been managed by the Reserve Bank of India and is classified as a managed float regime. Documentation is required for offshore trading. FX options and NDFs options are available. It is widely speculated that the INR will be among the first of the emerging markets to become spot eligible without restrictions or documentation. There is a very liquid bond market with maturities of up to 25 years available, based on the government's need to fund the persistent budget deficit. Interest rate swaps are available onshore and are traded up to 10 years, with mixed liquidity. Currency Indian Rupee Quotation Convention 3 decimal points Most liquid cross USD/INR Best Liquidity 0400-1000 GMT Average Bid/Offer * 8 pips (45.4200 / 45.4208) 1 pip 0.001 INR Average Daily Trading Volume USD 750m Settlement Transaction plus two days (T+2)

Korea

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The won is a floating currency. Local and offshore markets are treated separately. Documentation is required for delivery at maturity offshore and for forward FX contracts. FX options and NDFs are traded. There are no trading restrictions. Interest rate swaps are available and are traded up to 10 years, with interest rate options also offered. Currency Korean Won Quotation Convention 2 decimal points Most liquid cross USD/KRW Best Liquidity 0130-0830 GMT Average Bid/Offer * 0.15 (1182.50 - 1182.65) 1 pip 0.01 KRW Average Daily Trading Volume USD 2bn Settlement Transaction plus two days (T+2)

Mexico

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In 1994, an economic crisis in Mexico was triggered by the planned but sudden devaluation of the peso. Because the peso was widely recognised as overvalued, the government abruptly announced that it would let the exchange rate float against the USD. Within a week, the exchange rate fell from three MXN per USD to 10 MXN per USD. The currency crisis was stabilised when the U.S. granted Mexico a USD 50bln loan to save the Mexican economy. Today, both FX and the local debt markets are very liquid. The government issues bills with terms ranging from one month up to one year on a weekly basis, according to a pre-announced schedule. The government also issues longer-term MXN securities with up to a five year maturity, but the short end is most liquid. The government has issued MXN denominated securities since 1995, and inflation-linked bonds since 1996. The extension in the yield curve that came from the more stabilised macroeconomic framework in recent years has allowed Mexican firms to issue peso-denominated securities with medium term tenors in the domestic market. Interest rate swaps are liquid up to five years and are traded up to 10 years. Currency Mexican Peso Quotation Convention 4 decimal points Most liquid cross USD/MXN & EUR/MXN Best Liquidity 0830-1930 GMT Average Bid/Offer * 120 pips USD/MXN (10.8350 - 10.8470) 200 pips EUR/MXN (13.9000 - 13.9200) 1 pip .0001 MXN Average Daily Trading Volume USD 7bn Settlement Cash, Tom, Spot

Poland

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The zloty has been a floating currency since 2000. It's convertible for current account transactions. Most money market transactions are conducted through forex swaps for offshore investors. Domestic security exposures can be hedged in the domestic forward market by offshore investors. An offshore interest rate swap market has been developing fast, with the five-year and less being the most liquid part of the IRS curve. Poland's accession to the EU means that the country will adopt the euro in the future. In 2006, the Polish government stated that it will adopt the euro no sooner than 2010, pushing the deadline back from the previously stated goal of 2008. Economic conditions could further delay the adoption of the euro. Currency Polish Zloty Quotation Convention 4 decimal points Most liquid cross USD/PLN & EUR/PLN Best Liquidity 0900-1700 GMT Average Bid/Offer * 80 pips USD/PLN (3.6550 - 3.6630) 80 pips EUR/PLN (4.6910 - 4.6990) 1 pip .0001 PLN Average Daily Trading Volume USD 1bn Settlement Transaction plus two days (T+2)

Singapore

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The SGD is under a managed float regime guided by the currency's trade weighted index. The long term policy of the Monetary Authority of Singapore is to manage a trade weighted appreciation of the currency to reduce imported inflation and to balance aggregate demand. There are no local or offshore restrictions, therefore documentation is not required. There is a liquid spot market and a limited forward FX market. NDFs are not available, but FX options are. The government and the corporate bond markets have grown in popularity. IRSs are traded onshore from one to 10 years with liquidity good up to five years, but poor beyond that. Currency Singapore Dollar Quotation Convention 4 decimal points Most liquid cross USD/SGD Best Liquidity 0100-0800 GMT Average Bid/Offer * 7 pips (1.6930 - 1.6937) 1 pip .0001 SGD Average Daily Trading Volume USD 1bn Settlement Transaction plus two days (T+2)

South Africa

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In the 1990s, political instability and uncertainty advanced the depreciation of the ZAR. The sudden depreciation in 2001 led to a formal investigation, which prompted the beginning of an ongoing economic recovery. The South African domestic market is one of the most sophisticated in terms of liquidity and products compared to other domestic markets. Foreign exchange and money markets are liquid, with active participation from onshore and offshore investors. The fixed income market is also well developed, with a term structure of up to 30 years. The interest rate swap market is also quickly developing and becoming more liquid. There are restrictions for offshore investors, which are rarely enforced. Currency South African Rand Quotation Convention 4 decimal points Most liquid cross USD/ZAR Best Liquidity 0900-1700 GMT Average Bid/Offer * 300 pips (6.7400 - 6.7700) 1 pip .0001 ZAR Average Daily Trading Volume USD 1bn Settlement Transaction plus two days (T+2)

Thailand

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New restrictions on the baht were introduced after the Asian financial crisis of the 1990s. These tighter controls have reduced THB volatility and helped the Bank of Thailand maintain lower interest rates. The THB is now a freely floating currency with segregated domestic and offshore markets. Official documentation is required to trade THB in the spot and forward markets. NDFs are not available, but FX options are. The government bond market has grown rapidly since 1997, helping to set the benchmark for corporate bond issuance. Issuance rose sharply as the government raised funds to assist in a financial sector bail-out in 1998. The corporate bond market has flourished as companies turn to the market for funding, due to low interest rates and banks' reluctance to lend. IRSs are available onshore and offshore from one to 10 years with liquidity poor beyond five years. Currency Thai Baht Quotation Convention 2 decimal points Most liquid cross USD/THB Best Liquidity 0100-0900 GMT Average Bid/Offer * 5 pips (39.00 - 39.05) 1 pip .01 THB Average Daily Trading Volume USD 700 - 900m Settlement Transaction plus two days (T+2)

Turkey

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The Turkish lira experienced severe depreciation due to Turkey's persistent inflation from the 1970s through the 1990s. The exchange rate went from an average of nine lira per USD in the late 1960s to 1.65 million lira per USD in 2001. In 2003, the Turkish parliament passed a law which allowed for the removal of six zeroes from the currency, and the creation of the new Turkish lira, which was adopted on Jan. 1, 2005. Prior to 2001, the TRL was weighted against a managed basket, but the currency is now fully convertible. There are no restrictions on offshore investment. Both forex and fixed-income markets are liquid, and offshore investors are fairly active in all markets. The longest maturity in TRL is 18 months. The most liquid part of the curve is up to one year. There is a liquid and active repo market with O/N-1w maturities. Currency Turkish Lira Quotation Convention 4 decimal points Most liquid cross USD/TRL Best Liquidity 0830-1700 GMT Average Bid/Offer * 10 pips (1.3332 - 1.3322) 1 pip .0001 TRL Average Daily Trading Volume USD 500m Settlement Transaction plus two days (T+2)

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* The "Average Bid/Offer" listings above are illustrations of how the average prices or spreads of a listed currency pair may appear. They do not, however, reflect the spreads or bid/offer prices available to forex traders through GFT, Division of Global Futures and Forex, Ltd.

NOTE: The information in this publication is taken from publicly available sources and is subject to change without notice. The publisher assumes no responsibility for inaccuracies or changes in the data. The information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. GFT is merely providing this guide for your general information. GFT will not be responsible for any losses incurred on investments made by readers and customers as a result of any information contained in this guide. GFT does not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

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