01652cas a2200241 a 4500 AALejournalIMF001053 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451856101 1018-5941 BD-DhAAL BD-DhAAL Breuer, Peter. Central Bank Participation in Currency Options Markets / Peter Breuer. Washington, D.C. : International Monetary Fund, 1999. 1 online resource (40 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper analyzes whether and how central banks can use currency options to lower exchange rate volatility and maintain (implicit) target zones in foreign exchange markets. It argues that selling rather than buying options will result in market makers dynamically hedging their long option exposure in a stabilizing manner, consistent with the first objective. Selling a 'strangle' allows a central bank to increase the credibility of its commitment to a target zone, and could have a lower expected cost than spot market interventions. However, this strategy also exposes the central bank to an unlimited loss potential. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1999/140 Full text available on IMF http://elibrary.imf.org/view/journals/001/1999/140/001.1999.issue-140-en.xml IMF e-Library