1.   By buying and selling foreign currencies on the foreign exchange market, the Bank of England can affect the exchange rate.

2.   It will be entering into contracts to both buy and sell specific currencies on or between specific dates.

3.   Although most of those trades can be done directly, traders sometimes sell other currencies for dollars, then use those dollars to buy marks or Swiss francs.

4.   An expanding trade gap hurts the dollar because the currency must be sold to finance the excess of imports.

5.   And as the mark rises in value, the pressure on the dollar increases, because to buy marks traders must sell other currencies, including dollars.

6.   An option differs from a futures contract, in which both parties make a binding agreement to buy or sell currency at some point in the future.

7.   An option is the right, but not the obligation, to buy or sell a currency at a set price in the future.

8.   As a result, investors sell the currency on expectations that there will be less demand for the currency in the future.

9.   Banks were so far allowed to buy and sell foreign currencies based on actual orders from exporters and importers who need the currencies for their merchant trade.