The foreign exchange market is the largest financial market in the world, with an average daily turnover in April 1992, estimated at $880 billion, compared with $620 billion in April 1989. 3/ The largest market segment is spot delivery – usually two days later – which accounted for almost half of turnover in 1992, followed by the foreign exchange swap market, which accounted for 40% of turnover. The revenue shares by outright Forward Deals, Options and Futures were 7 percent, 5 percent and 1 percent, respectively. See Goldstein et al. (1993a) for a discussion on foreign participation by institutional investors in industrialized countries. An author of a put option can therefore dynamically insure the option according to the rules of the Put price formula. He must first define the portfolio that mimics the value of the option: for example, by vacuum shots of [1-N (d1)] German marks for the dollar and purchase of [1-N (d2)] exp[-r$T]X in the United States. The treasure. As the exchange rate fluctuates, the author of the option, now guaranteed, must adjust the positions of marks and long dollars according to the formula to continue to imitate the option. As a general rule, adjustments are not continuous; In order to avoid transaction costs, adjustments to the imitating portfolio are made as part of a periodic rebalancing. 18/ How important will the dynamic hedging reaction be? Figure 8 refers to the reaction of dynamic hedging programs in the final days of a managed or fixed exchange rate regime. In the days leading up to the collapse of an exchange band regime, the gradual devaluation of the spot exchange rate will have a significant impact on the hedging rate and will require a gradual increase in the short currency position. .