Forex Market Sources Confirm Options Use By Spanish Central Bank

In the week or two leading up to Spain's devaluation of the peseta last month, rumors began circulating in the foreign exchange market that the Spanish National Bank was using a novel strategy in its bid to defend the currency against speculators--selling Deutsche mark call/peseta put options. Although Spanish central bank officials have subsequently denied that they used options, market observers insist that the rumors were true, dismissing the Spanish denial with a "they would, wouldn't they?"