Wall Street Journal —China will launch domestic trading of yuan options against other currencies in Apr, a significant move that signals Beijing’s intention to tolerate a more flexible and volatile currency and further internationalize the yuan.
The State Administration of Foreign Exchange, China’s foreign-exchange regulator, said in a statement Wednesday that it will initially launch trading of so-called European-style yuan options on the interbank market. Businesses will be allowed to buy call and put options from banks, it said, but not to sell them unless they are squaring positions, which means they are bringing their buy and sell positions equal.
China Yuan has become increasing popular due to its booming economy and appreciation of the currency. The yuan had risen 3.7% against the U.S. dollar since June, many investors want to go into the market but are much restricted.
The offshore yuan (CNH) is actually less liquid compared to the onshore Renminbi (CNY) and investors could be investing at very wide spreads.
If you are considering investing in a Yuan product (or any other foreign currency fixed deposit for that matter), always compare the spread and not only the interest rates that the bank is offering you.
With CNH spreads going up to as wide as 8%, you will need to be a long term investor to reap the benefits of Yuan appreciation.