Hello. I want to ask the people of this community something very serious relative with a CMEGROUP Futures Product. That Futures is the Eur/USD Currency. A regular one Futures Contract relative to it, is equal with the amount of 125000 Euro’s. Now, if suppose that this currency one day stop to exist because the european union decompose it. In that way how someone will protect for example their long positions to it ? Do you have an opinion ? I will stay for your comments. Best Regards, George Kanellopoulos.
1) The EURUSD IMM future is the thing that worries me the least about the Euro breakup. Nearly all the volume is in the nearest contract. I assume we'd have at least 3 months warning of a complete Euro breakup, so no problem. If I was worried about the Euro vanishing it would be about the much larger volumes of long dated derivatives, eg EUR interest rate swaps. 2) The Euro vanishing completely is very unlikely. Even if the euro breaks up its very likely a core group of countries will carry on using it (France, Germany, Benelux). If you put a gun to my head and ask me what happens in this very unlikely event that the Euro vanishes you would expect any non national obligations to become DEM denominated, at some agreed breakup rate. Essentially this is the reverse of what happened to swap and other obligations when the Euro replace the national currencies.
there is no counter party risk in any exchange traded futures product. Everyone settles with the clearinghouse. Valuation can go anywhere.
The Euro can't really vanish. There would have to be a plan in place to replace it with the previously held currencies that precluded the Euro, in which case I would assume calculations would be fairly easily made to convert Euro denominated assets. That isn't to say the value of a Euro denominated derivative wouldn't explode up or down accordingly. Certainly it could be a Swiss Franc like move.
The Euro will not disappear. Never. Participating countries on the other hand might disappear. Tell them nobody told this. And nobody knows!