Reviewed by Howard L. Simons

To steal a page from the late Broadway belter (beltress?) Ethel Merman, "There's no business like no business." Internet firms with no revenues and no earnings are late arrivals to this party; the global foreign exchange business pioneered the concept of fast and furious trade for no purpose other than to trade fast and furiously. Real goods, real services and real earnings just get in the way. Foreign exchange trading became the world's largest business - about $1.2 trillion in daily transaction volume - only after it shed its dowdy connection to underlying physical trade and became an interest rate arbitrage play following the advent of floating exchange rates in the early 1970s.

Modern options theory is a contemporary of floating exchange rates; the original Black-Scholes model was published in 1973, and important extensions by Robert Merton and others followed in quick succession. With so much money at stake and so many theoretical and computational advances cascading, banks and trading firms quickly engaged in an arms race to gain a fleeting edge.

The connection between fancy footwork and profitable trading is tenuous at best, and one can be excused for suspecting many of the latest forays into hyper-sophistication as a way of separating the priestly classes from the riff-raff. Still, traders cannot play the game anymore at any level without at least acquainting themselves with all of the tools of the trade.

This compact volume is a great place to start this acquaintance for newbies and an excellent reference to keep on hand for veterans. David DeRosa, a professor at Yale University's School of Management and a regular contributor to Bloomberg News, conducts a brilliantly concise tour of his world, including a description of currency trading operations and mechanics seldom introduced into any academic tome.

The inclusion of a section on currency futures and exchange-traded options, while necessary perhaps for the sake of completeness, seems almost quaint in light of the dwindling role these instruments play for all except the smallest speculators. Given the seminal role of currency futures as the first futures on financial products of any kind, this is a sad epitaph.

Chapters follow quickly and concisely on plain vanilla options pricing, on volatility, and on the differences between European and American options in the foreign exchange market. Two concluding chapters on barrier options and a small selection of non-barrier exotic options (average rate, basket, quantos and compound options) complete the text.

The reader, if anything, is left wanting to see more examples of this quality and clarity. An expanded discussion of what additional information a foreign exchange trader must deal with during the day - interest rates, commodity prices, stock market fluctuations, political flatulence - and how these might affect the market would increase this work's "handbook" value. An expansion to include chapters on when to use which exotic option, why and what the costs and risks of these options are would be welcomed as well. And, while the euro was too new at the time of this book's writing, further discussion of and speculation on this grand experiment would have been welcome.

The true economic cost of training a trader should be enough to make any trading firm weep. Including this book in any package of materials or training session would be a cost-effective move indeed.