Discuss the implications of brexit?

Discuss the implications of brexit?



Brexit is an abbreviation for the possibility of Britain’s withdrawal from the European Union. Britain joined the Euro economic community of January 1st, 1973. In the recent past years, because of political, economic, and sovereign issues, many individuals within Britain were appealing to exit EU. This referendum was announced on 20th February, 2016 and the issue of existing EU was put to vote on June 23rd, 2016 to UK Citizens. Brexit is most likely to cause economic headwinds for both Britain and EU. Even on the penultimate day of the event, market anticipated that UK will not exit EU pricing GBP at an amount of 1.4879 against the dollar. However the results were contrary to expectations as Leave vote musters approximately 52% votes.

Brexit stumped the capital markets that have expected UK to remain in the European Union. This exit has far-reaching implications on the capital markets with high volatility felt across the equity, currency, bond, and commodity market. Britain’s domestic currency depreciated by more than approximately 10% to 30-year low against the USD. Due to the market volatility money is now flowing into safer asset classes, for example gold and Government Bonds that has resulted in drop in G-Sec yields and higher gold prices. Major brokerage firms see Brexit as a buying opportunity in the long term for investors. Now even the global equity markets witnessed downward spiral and also corrected the same sharply during the day. Eventually there was a sharp swing in the major currencies but, Japanese yen gained 6,73% post-brexit. Investors are now turning to the options market for protection.

According to the statistics, it showed GBP/USD options are more widely trade slowly. USD/GBP was largely traded in April 2015, apparently due to the closely run General Elections. The USD/GBP FX options were not largely impacted due to the political events in UK. However we see a considerable increase in the market share of USD/GBP among other currency pair. The calls were traded at approximately 43% whereas Puts were traded by 57% since March 2016

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