Monday, July 11, 2011

Markets in Everything: Yuan and Cow Breast Milk

1. Chicago Mercantile Exchange introduces futures contracts for the Chinese yuan.  Guess that means the "unfair pegging" of the yuan is over.

2. Human Breast Milk From Cows. (HT: Fred Dent)


At 7/11/2011 5:12 PM, Blogger morganovich said...

that futures contract will be interesting.

it will essentially give you a market assumption as to the likelihood of the peg being dropped or modified before a given date.

the chinese are experiencing more inflation than they expected/want.

a stronger currency (and higher rates) would help ameliorate that.

seems like an interesting time to be setting up this contract.

At 7/11/2011 5:36 PM, Blogger Benjamin Cole said...

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At 7/11/2011 5:38 PM, Blogger Benjamin Cole said...

China has free trade agreements set up with most of Southeast Asia, and has become the major trading partner of all countries in that region, and intra-region trade and investment is rapidly expanding. The yuan is becoming the international currency there.

We have the Seventh Fleet. It can't conduct much trade, is very expensive, though it can easily be sunk by torpedo or missiles.

That's okay. We may not prevail in Iraqistan, but we will spend about $4 trillion there--so that Asians will respect us more.

Hmm. I wonder who will become the dominant power in the Far East and SE Asia?

At 7/11/2011 6:10 PM, Blogger Methinks said...

You know, Mark Perry, I can't think of pairing more natural than FX futures on the Chicago Merc and human breast milk from cows.

At 7/11/2011 6:25 PM, Blogger Methinks said...

No, it does not necessarily mean the "unfair pegging" (unfair to the average person in China!) of the yuan is over.

The Merc seems to be betting on increasing convertibility in the future, but that doesn't mean that China will oblige.

Does anyone know how this contract is settled? If you take delivery of the yuan (as opposed to settling the contract for cash), who will deliver and how will delivery take place? China has pretty tight controls on its currency.

At 7/14/2011 6:39 PM, Blogger Michael E. Marotta said...

RE The Yuan (renminbi), futures markets traditionally are formed by producers seeking to minimize their risks. The classic case is the farmers' wheat co-operative which will take either or both sides of a contract.

Here, the Chinese government may be taking the same opportunity.

That said, the fact is that 90% or more of the activity comes from speculators who may buy on the rumor or might buy on the news but usually sell into their misery. Typically, the producer absorbs the speculators' losses and displays them as profits.


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