CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS. SOURCE: LEHMAN LIVE LEHMAN BROTHERS FOREIGN EXCHANGE TRAINING MANUAL Confidential Treatment Requested By Lehman Brothers Holdings, Inc. LBEX-LL 3356480CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS. SOURCE: LEHMAN LIVE TABLE OF CONTENTS PAG FOREIGN EXCHANGE SPOT: INTRODUCTION 1 FX SPOT: AN INTRODUCTION TO FOREIGN EXCHANGE SPOT TRANSACTIONS.......2 INTRODUCTION 2 WHAT IS AN OUTRIGHT? 3 VALUE DATES. 4 CREDIT AND SETTLEMENT RISKS 6 EXCHANGE RATE QUOTATION TERMS 7 RECIPROCAL QUOTATION TERMS (RATES) 10 CHANGE RATE MOVEMENTS u SHORTCUT. 14 BIDS AND OFFERS. 16 ‘THE RULE OF THE LEFT BID - RIGHT OFFER 7 CROSS RATES 22 BID-OFFER FOR THE CROSS RATES OF CURRENCIES ON SAME TERMS. 25 EXCHANGE RATE MOVEMENT REVISITED FOR CROSSES 26 BID-OFFER FOR CROSS RATES OF CURRENCIES ON, DIFFERENT TERMS 27 SUMMARY 28 SHORTC 31 ‘TRADING CONVENTIONS AMONG MARKET MAKERS 32 SUMMARY 33 REVIEW PROBLEMS. 35 FOREIGN EXCHANGE FORWARDS: INTRODUCTION 38 FX FORWARDS: AN INTRODUCTION TO FOREIGN EXCHANGE FORWARDS. 39 INTRODUCTION 39 WHAT ARE FORWARDS?. 39 CALCULATING THE FORWARD RATE. 40 HOW DO YOU CALCULATE FORWARD POINTS? 4B PAY AND EARN POINTS. 43 SUMMARY. 46 SAMPLE PROBLEMS 46 PREMIUM VS, DISCOUNT POINTS, SI Confidential Treatment Requested By Lehman Brothers Holdings, Inc. LBEX-LL 3356481CONFIDENTIAL TREATMENT REQUESTED BY BARCLAYS. SOURCE: LEHMAN LIVE TABLE OF CONTENTS (continued) CONTENTS. PAGE. SAMPLE PROBLEMS. FORWARD RATE CONVENTIONS SAMPLE PROBLEMS. CALCULATING ODD DATES 52 54 ‘TYPES OF TRANSACTIONS. HOW DO THE FORWARD POINTS CHANGE? WHICH SIDE OF THE MARKET? o CURRENCY FUTURES. ot FUNDING. 62 ‘TRADE IDEAS AND HOW THEY ARE FORMED 2 TRADING EURODOLLAR FUTURES. ot ‘TRADING SPREADS INVOLVES ANALYZING YIELD CURVES 5 AMPLE OF A POSITIVE CARRY TRADE. 66, FORWARDS REVIEW PROBLEMS. oT FOREIGN EXCHANGE SWAPS: INTRODUCTION i) WHAT IS A SWAP. 70 VALUE DAT ” BID-OFFER SPREADS a CALCULATING SWAP POINTS 82 RULES OF THUMB a PAY OR EARN THE POINT! 86 ‘THE RATIONALE BEHIND THE CHART. 88 LEARNING POINTS. 92 SUMMARY. 92 FOREIGN EXCHANGE OPTIONS: INTRODUCTION 4 FX OPTIONS: AN INTRODUCTION TO FOREIGN EXCHANGE DERIVATIVES. 95, INTRODUCTION 95 VANILLA OPTIONS 95 PAYOFF OF A LONG AND SHORT CALL OPTION, 96. PAYOFF OF A LONG AND SHORT PUT OPTION. 96, ‘THE GREEKS. 7 DELTA RANGES FROM 0% (DEEP OTM) TO 100% (DEEP ITM), 99 ‘TRADING GAMMA ON A LEHMAN CALL OPTION, 102 Pad. ON GAMMA HEDGING EXAMPLE, 103 a) Confidential Treatment Requested By Lehman Brothers Holdings, Inc. LBEX-LL 3356482