Currency futures and forwards
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This document discusses currency futures and forward contracts. It defines a futures contract as an agreement to buy or sell a specified amount of currency at a predetermined exchange rate at a future date. Forward contracts are similar over-the-counter agreements without standardization. Both can be used for hedging currency risk from future cash flows or speculating on currency movements. The document outlines key features and uses of futures and forward contracts for corporations and investors.
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Currency futures and forwards
Futures contracts and forward contracts both allow parties to exchange currencies at a predetermined exchange rate on a future date. Futures are traded on organized exchanges and have standardized contract sizes and delivery dates, while forwards are over-the-counter and allow customization. Corporates can use currency futures and forwards to hedge foreign currency cash flows by taking offsetting long or short positions to lock in exchange rates and reduce exchange rate risk. Speculators can also use futures and forwards to profit from anticipated currency movements.
Currency futures and forwards
The document discusses currency futures and forward contracts. It defines futures as agreements to buy or sell a specified amount of currency at a predetermined exchange rate in the future. Features include standardized contracts that trade on exchanges. Forwards are over-the-counter agreements with customized terms for non-standard delivery dates and amounts. The document outlines how corporations can use futures and forwards to hedge currency risk from future foreign currency cash flows.
Currency futures
The document discusses various foreign exchange derivatives, including currency forwards, futures, options, and swaps. It notes that currency futures were first introduced on the NSE in 2008 on the USD-INR pair, and later expanded to other currency pairs. Currency options were introduced in 2010. The key features and differences between currency forwards, futures, and options are summarized. Futures are traded on exchanges, have standardized contracts, and involve clearing houses and margin requirements. Forwards involve customized over-the-counter contracts between two parties. Options give the buyer the right but not obligation to buy or sell currencies at a future date at a strike price.
Interest Rate Derivatives
This document discusses interest rate derivatives, which are financial instruments derived from underlying interest rates or cash markets. Some popular types of interest rate derivatives are futures, forwards, options, and swaps. Interest rate derivatives allow investors to adjust portfolio positions more quickly and cheaply than transacting in the underlying instruments. They also provide more liquidity. Specifically, the document defines interest rate futures, swaps, caps, and floors, and discusses the markets for exchange-traded versus over-the-counter interest rate derivatives.
Currency Derivatives: A Practical Introduction
Currency Derivatives: A Practical Introduction
- by Stuart Thomas, School of Economics and Finance, RMIT
Currency derivatives
This document discusses various currency derivatives including forward contracts, futures contracts, and options contracts. Forward contracts allow companies to lock in an exchange rate for a currency transaction occurring at a future date. Currency futures contracts are standardized exchange-traded contracts that allow hedging or speculation on anticipated exchange rate movements. Currency options provide the right but not the obligation to buy or sell a currency at a predetermined exchange rate, and are used by companies and speculators. These derivatives allow risk related to currency fluctuations to be transferred or mitigated.
Pricing Foreign Exchange Risk
This document summarizes a presentation on pricing foreign exchange risk. It introduces common derivative products like options and futures and explains how to construct a forward price curve. It also provides an overview of the Black-Scholes and Merton options pricing models, including the key components and formulas. The document discusses the Greeks and how they are calculated under Black-Scholes and Merton. Finally, it reviews the currency options and futures market, including examples of exotic options and how options can be used for hedging and speculation.
International Financial Markets
This document provides an overview of international financial markets, including:
- The foreign exchange, Eurocurrency, Eurocredit, Eurobond, and international stock markets. It describes the background and corporate use of each.
- The motives for companies and investors to use international financial markets, such as taking advantage of interest rate differences or currency fluctuations between countries.
- Key concepts related to each market, including how foreign exchange rates are established, the roles of major banks, types of bonds and loans offered, and considerations for companies issuing stock internationally.
- A chart illustrating the typical foreign cash flows of a multinational corporation and how the various international financial markets facilitate trade, investment, and financing activities.
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Currency futures and forwards
Futures contracts and forward contracts both allow parties to exchange currencies at a predetermined exchange rate on a future date. Futures are traded on organized exchanges and have standardized contract sizes and delivery dates, while forwards are over-the-counter and allow customization. Corporates can use currency futures and forwards to hedge foreign currency cash flows by taking offsetting long or short positions to lock in exchange rates and reduce exchange rate risk. Speculators can also use futures and forwards to profit from anticipated currency movements.
Currency futures and forwards
The document discusses currency futures and forward contracts. It defines futures as agreements to buy or sell a specified amount of currency at a predetermined exchange rate in the future. Features include standardized contracts that trade on exchanges. Forwards are over-the-counter agreements with customized terms for non-standard delivery dates and amounts. The document outlines how corporations can use futures and forwards to hedge currency risk from future foreign currency cash flows.
Currency futures
The document discusses various foreign exchange derivatives, including currency forwards, futures, options, and swaps. It notes that currency futures were first introduced on the NSE in 2008 on the USD-INR pair, and later expanded to other currency pairs. Currency options were introduced in 2010. The key features and differences between currency forwards, futures, and options are summarized. Futures are traded on exchanges, have standardized contracts, and involve clearing houses and margin requirements. Forwards involve customized over-the-counter contracts between two parties. Options give the buyer the right but not obligation to buy or sell currencies at a future date at a strike price.
Interest Rate Derivatives
This document discusses interest rate derivatives, which are financial instruments derived from underlying interest rates or cash markets. Some popular types of interest rate derivatives are futures, forwards, options, and swaps. Interest rate derivatives allow investors to adjust portfolio positions more quickly and cheaply than transacting in the underlying instruments. They also provide more liquidity. Specifically, the document defines interest rate futures, swaps, caps, and floors, and discusses the markets for exchange-traded versus over-the-counter interest rate derivatives.
Currency Derivatives: A Practical Introduction
Currency Derivatives: A Practical Introduction
- by Stuart Thomas, School of Economics and Finance, RMIT
Currency derivatives
This document discusses various currency derivatives including forward contracts, futures contracts, and options contracts. Forward contracts allow companies to lock in an exchange rate for a currency transaction occurring at a future date. Currency futures contracts are standardized exchange-traded contracts that allow hedging or speculation on anticipated exchange rate movements. Currency options provide the right but not the obligation to buy or sell a currency at a predetermined exchange rate, and are used by companies and speculators. These derivatives allow risk related to currency fluctuations to be transferred or mitigated.
Pricing Foreign Exchange Risk
This document summarizes a presentation on pricing foreign exchange risk. It introduces common derivative products like options and futures and explains how to construct a forward price curve. It also provides an overview of the Black-Scholes and Merton options pricing models, including the key components and formulas. The document discusses the Greeks and how they are calculated under Black-Scholes and Merton. Finally, it reviews the currency options and futures market, including examples of exotic options and how options can be used for hedging and speculation.
International Financial Markets
This document provides an overview of international financial markets, including:
- The foreign exchange, Eurocurrency, Eurocredit, Eurobond, and international stock markets. It describes the background and corporate use of each.
- The motives for companies and investors to use international financial markets, such as taking advantage of interest rate differences or currency fluctuations between countries.
- Key concepts related to each market, including how foreign exchange rates are established, the roles of major banks, types of bonds and loans offered, and considerations for companies issuing stock internationally.
- A chart illustrating the typical foreign cash flows of a multinational corporation and how the various international financial markets facilitate trade, investment, and financing activities.
Foriegn exchange market (2)
The foreign exchange market is the largest financial market in the world, with over $1 trillion traded daily. It allows for the trading of currencies between parties without a central location. Exchange rates determine the relative value of currencies, and foreign exchange risk arises from fluctuations in these rates that can impact international transactions and investments. Various derivative instruments like forward contracts traded in over-the-counter markets allow participants to hedge their foreign exchange risk exposures.
Foriegn exchange market
The foreign exchange market is the largest financial market in the world, with over $1 trillion traded daily. It allows for the trading of currencies between parties without a central location. Exchange rates determine the relative value of currencies, and foreign exchange risk arises from fluctuations in these rates that can impact international transactions and investments. Various derivative instruments like forward contracts traded in over-the-counter markets allow participants to hedge their foreign exchange risk exposures.
Currency Derivatives
1. The document discusses various currency derivatives including forward contracts, futures contracts, and options contracts. Forward contracts allow corporations to lock in exchange rates for future currency needs, while futures and options are used by corporations for hedging and by speculators.
2. Currency futures contracts are standardized and exchange-traded, whereas forward contracts are customized over-the-counter contracts. Options provide the right but not obligation to buy or sell a currency.
3. The use of currency derivatives allows corporations to hedge currency risk and reduce fluctuations in value, while speculation in these markets allows some traders to profit but does not consistently generate large profits due to market efficiency.
Currency options
Currency derivatives allow investors to hedge risk and speculate on currency movements. Currency futures contracts are standardized contracts to buy or sell a currency at a specified date and price in the future. The price of a futures contract is derived using interest rate parity principles. Currency options provide the right but not the obligation to buy or sell a currency at a specified price. Over-the-counter currency options are tailored contracts for large institutions while exchange-traded currency options are standardized contracts traded on an exchange.
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Derivative is a contract or a product whose value is derived from value of some other asset known as underlying.
Introduction to derivatives
A derivative is a financial contract between two parties whose value is based on an agreed-upon underlying asset such as a bond, commodity, currency, interest rate, or stock. Ownership of a derivative does not equate to ownership of the underlying asset. Derivatives can be used for hedging risk by offsetting potential losses or for speculation by making financial bets on the future value of the underlying asset. Common uses of derivatives include managing currency, interest rate, price, and credit risk.
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This document discusses futures contracts. It defines a futures contract as a legal agreement to buy or sell an asset at a predetermined price at a specified time in the future. Futures contracts allow parties to manage the risks of price fluctuations. There are two main objectives for futures contracts - hedging to manage risk, and speculation to potentially profit from price changes. The document outlines various types of futures contracts including those for commodities, interest rates, stock indexes, and currencies.
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Currency futures and forwards
Futures contracts and forward contracts are used to hedge against currency risk or speculate on currency movements. A futures contract is an agreement to buy or sell a specified amount of currency at a predetermined exchange rate at a future date, and trades on an organized exchange. A forward contract also involves buying or selling currency at a future date but is customized and over-the-counter. Companies can use currency futures to hedge existing foreign currency cash flows. Hedging and speculation with forwards involves taking long or short positions based on expectations of currency appreciation or depreciation.
Currency Derivatives
The document discusses currency derivatives, including forward contracts, futures contracts, and options. It provides details on:
- How forward contracts allow corporations to lock in future exchange rates for currency exchanges.
- How futures contracts standardize currency amounts and settlement dates for exchange on an futures exchange.
- The types of currency options (calls and puts) and how their values are determined by the relationship between the strike price and spot rate.
Introduction to derivatives
The document provides an introduction to derivatives, including defining key terms like underlying assets, exchange-traded vs over-the-counter derivatives, and players in the derivatives market like hedgers, speculators, and arbitrageurs. It also explains different types of derivatives like standardized derivatives (futures, options, swaps) and exotic derivatives (forward contracts). Specific products are defined, like calls and puts for options, and interest rate swaps and currency swaps.
Forex concepts
The foreign exchange market allows individuals, firms, and banks to buy and sell currencies. Trading occurs globally through telecommunications between buyers and sellers located around the world. There are two main functions - clearing currencies by exchanging one for another, and providing credit by allowing time between a purchase and payment. Forward contracts and futures contracts are agreements to buy or sell currencies at predetermined prices and dates in the future. Participants include hedgers who avoid risk, speculators who accept risk for profit, and arbitragers who exploit small price differences across markets.
Forex concepts
The document discusses foreign exchange markets and transactions. It defines foreign exchange markets as markets where individuals, firms, and banks buy and sell foreign currencies. It describes the basic functions of foreign exchange markets as clearing currencies and providing credit. It then explains various foreign exchange transactions including spot transactions, outright forward transactions, futures contracts, options, and bid and ask quotes.
derivativesmarketarz 100709171035-phpapp01
Derivatives are financial instruments whose value is derived from an underlying asset such as stocks, bonds, currencies, or commodities. The three main types of derivatives are futures, options, and swaps. Futures are standardized contracts to buy or sell an asset in the future at an agreed upon price. Options provide the right but not obligation to buy or sell an asset. Swaps involve exchanging one set of cash flows for another. Derivatives are used for hedging risk, speculation, and arbitrage opportunities.
derivates.pdf
The document discusses various aspects of derivatives markets, including defining what a derivative is, the functions of derivatives markets, participants in derivatives markets, and classifications of different types of derivatives contracts. It provides details on over-the-counter derivatives markets and exchange-traded derivatives markets. It also defines key terms related to forwards, futures, swaps, and options contracts.
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Derivatives are financial contracts whose value is based on an underlying asset such as a commodity, currency, or stock. There are several types of derivatives including futures, forwards, options, and swaps. Derivatives allow participants to transfer risk, help discover prices, catalyze entrepreneurship, and increase savings and investment. Participants in derivatives markets include hedgers who reduce price risk, speculators who leverage bets on price movements, and arbitrageurs who exploit price discrepancies. Derivatives can be traded over-the-counter between two parties or on a derivatives exchange.
derivates.pptx
Derivatives are financial contracts whose value is based on an underlying asset such as a commodity, currency, or stock. There are several types of derivatives including futures, forwards, options, and swaps. Derivatives are traded both over-the-counter (OTC) between private parties and on exchanges. Derivatives help transfer risk, discover prices, catalyze business activity, and increase savings and investment over the long run. Participants in derivatives markets include hedgers seeking to reduce risk, speculators betting on price movements, and arbitrageurs looking to profit from price discrepancies.
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Derivatives.pptx
Derivatives are financial instruments whose value is based on an underlying asset. A derivative contract derives its value from changes in the price of the underlying asset. There are three main types of derivatives - forwards, futures, and options. Forwards are customized contracts where two parties agree to buy or sell an asset at a future date at a predetermined price. Futures are standardized forward contracts that are traded on an organized exchange. Options contracts give the holder the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before a specified date in the future.
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The foreign exchange market is the largest financial market in the world, with over $1 trillion traded daily. It allows for the trading of currencies between parties without a central location. Exchange rates determine the relative value of currencies, and foreign exchange risk arises from fluctuations in these rates that can impact international transactions and investments. Various derivative instruments like forward contracts traded in over-the-counter markets allow participants to hedge their foreign exchange risk exposures.
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The foreign exchange market is the largest financial market in the world, with over $1 trillion traded daily. It allows for the trading of currencies between parties without a central location. Exchange rates determine the relative value of currencies, and foreign exchange risk arises from fluctuations in these rates that can impact international transactions and investments. Various derivative instruments like forward contracts traded in over-the-counter markets allow participants to hedge their foreign exchange risk exposures.
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1. The document discusses various currency derivatives including forward contracts, futures contracts, and options contracts. Forward contracts allow corporations to lock in exchange rates for future currency needs, while futures and options are used by corporations for hedging and by speculators.
2. Currency futures contracts are standardized and exchange-traded, whereas forward contracts are customized over-the-counter contracts. Options provide the right but not obligation to buy or sell a currency.
3. The use of currency derivatives allows corporations to hedge currency risk and reduce fluctuations in value, while speculation in these markets allows some traders to profit but does not consistently generate large profits due to market efficiency.
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Currency derivatives allow investors to hedge risk and speculate on currency movements. Currency futures contracts are standardized contracts to buy or sell a currency at a specified date and price in the future. The price of a futures contract is derived using interest rate parity principles. Currency options provide the right but not the obligation to buy or sell a currency at a specified price. Over-the-counter currency options are tailored contracts for large institutions while exchange-traded currency options are standardized contracts traded on an exchange.
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Derivative is a contract or a product whose value is derived from value of some other asset known as underlying.
Introduction to derivatives
A derivative is a financial contract between two parties whose value is based on an agreed-upon underlying asset such as a bond, commodity, currency, interest rate, or stock. Ownership of a derivative does not equate to ownership of the underlying asset. Derivatives can be used for hedging risk by offsetting potential losses or for speculation by making financial bets on the future value of the underlying asset. Common uses of derivatives include managing currency, interest rate, price, and credit risk.
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Introduction to money markets
This document introduces money market securities and participants. It discusses Treasury bills, their competitive bidding process, and how yield is estimated. Other money market instruments covered include commercial paper, negotiable certificates of deposit, and money market funds. Money market securities provide short-term funding options with good liquidity and security.
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ADRs and GDRs allow non-U.S. companies to raise capital from U.S. and global investors. ADRs represent shares of a non-U.S. company held in trust by a U.S. bank and trade like U.S. stocks on American exchanges. GDRs represent shares of a non-U.S. company held in trust by an international bank and allow companies to raise capital simultaneously in multiple markets. Both ADRs and GDRs provide foreign investors with a way to invest in overseas companies while trading in a local market, but they do not eliminate currency risk associated with the underlying non-U.S. company.
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This document provides the stock price history for Chevron (CVX) shares on March 27, 2009. It lists the closing price as $68.90 per share with a volume of 12,842,600 shares traded that day. The split adjustment factor for the stock is listed as 1:1. Information on looking up historical stock prices for Texaco and Unocal can also be found in their respective investor relations archives.
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Similar to Currency futures and forwards
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Futures contracts and forward contracts are used to hedge against currency risk or speculate on currency movements. A futures contract is an agreement to buy or sell a specified amount of currency at a predetermined exchange rate at a future date, and trades on an organized exchange. A forward contract also involves buying or selling currency at a future date but is customized and over-the-counter. Companies can use currency futures to hedge existing foreign currency cash flows. Hedging and speculation with forwards involves taking long or short positions based on expectations of currency appreciation or depreciation.
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The document discusses currency derivatives, including forward contracts, futures contracts, and options. It provides details on:
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- How futures contracts standardize currency amounts and settlement dates for exchange on an futures exchange.
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Derivatives are financial contracts whose value is based on an underlying asset such as a commodity, currency, or stock. There are several types of derivatives including futures, forwards, options, and swaps. Derivatives allow participants to transfer risk, help discover prices, catalyze entrepreneurship, and increase savings and investment. Participants in derivatives markets include hedgers who reduce price risk, speculators who leverage bets on price movements, and arbitrageurs who exploit price discrepancies. Derivatives can be traded over-the-counter between two parties or on a derivatives exchange.
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This document provides an executive summary of the world electronic industries from 2008 to 2013. It finds that while the electronics industry experienced a decline in 2009 due to the financial crisis, production of professional electronic equipment is expected to drive overall growth above average between 2008 and 2013. Specifically, industrial and medical electronics will contribute significantly to industry growth. Additionally, China is projected to outperform other regions in recovering from the economic downturn. The summary highlights innovation and integration across various applications as keys to the long-term prospects of the electronics industry.
Weberian model
The document summarizes Alfred Weber's locational theory model, known as the Weberian model or the least cost approach. The key points are:
1. The Weberian model explains the optimal location of industrial facilities using the locational triangle. Transportation is the most important element of the model.
2. Solving the Weber model involves three stages - finding the least transport cost location, adjusting for labor costs, and adjusting further for agglomeration economies.
3. Transportation cost is the primary factor in determining optimal location, according to the model. Labor costs and agglomeration economies are secondary adjustment factors.
Value orientation model
Kluckhohn and Strodtbeck developed a model for analyzing and comparing cultures based on their underlying values and orientations. The model identifies six key dimensions along which cultures vary: humanity's relationship with nature, concepts of time, views of human activity, social relationships, basic human nature, and orientation towards space. These dimensions provide a framework for understanding differences in how cultures approach issues like social organization, time orientation, and human nature. While useful, the model is limited by its vagueness, difficulty of measurement, and lack of direct focus on business and management issues.
Value orientation model
The document discusses Kluckhohn and Strodtbeck's model of cross-cultural value orientations, which identifies six basic dimensions that cultures vary along: relationship to nature, time orientation, activity orientation, relationships among people, human nature, and space/property. These dimensions influence a culture's values regarding important issues like work, family, and social relations. While insightful, Kluckhohn and Strodtbeck's framework has weaknesses like being vague, difficult to measure, and not directly addressing business and management concerns.
Uk intellectual model
This document outlines a model mediation procedure and agreement for intellectual property disputes in the UK. It provides guidance for conducting a mediation, including procedures for exchanging information, conducting the mediation, reaching and formalizing any settlement agreement, ensuring confidentiality, and allocating costs. Key aspects include having representatives with full authority to settle, preparing concise case summaries and documents to share, maintaining confidentiality of mediation discussions, and jointly sharing mediation fees and expenses.
Trompenaars cultural dimensions
Trompenaars and Hampden-Turner identified seven cultural dimensions along which cultures can be classified based on their research on business executives. These seven dimensions are universalism versus particularism, communitarianism versus individualism, neutral versus emotional, diffuse versus specific cultures, achievement versus ascription, human-time relationship, and human-nature relationship. Their 1997 book "Riding The Waves of Culture" explores these seven value orientations between cultures.
The building of the toyota car factory
Toyota built a new car factory in Burnaston, UK, creating over 3000 jobs. Burnaston was chosen as the site because it was a large, flat, greenfield site next to major roads with access to suppliers and a local workforce. The new factory had positive economic effects, including jobs, increased spending, and supplier companies moving to the area. However, it also increased traffic and destroyed greenfield land. While most benefits were local, there was a potential downside if it reduced sales or jobs elsewhere.
The International legal environment of business
The document discusses the international legal environment of business. It covers topics such as international law and agreements, business structures abroad, and dispute resolution. It also examines the international business environment, risks of international transactions, and origins and sources of international law. International business involves entities from multiple countries and issues around trade, capital, personnel across borders under different legal systems and government policies.
Textile Industry
India's textile industry is one of the largest in the world, contributing 14% to industrial production and employing over 35 million people. It is the largest provider of employment after agriculture and earns 27% of India's total foreign exchange through textile exports. The industry has grown significantly since economic liberalization in 1991 and includes cotton, silk, wool, readymade garments, and hand-crafted textiles segments. It faces competition from countries like China but also has opportunities for growth in the domestic market and through trade agreements. The government is taking initiatives to support the industry through skills training programs and new textile parks.
Sales
This document discusses key concepts related to documentary sales and international transactions. It defines key terms like documentary sale, negotiability, bills of lading, and documentary draft. It explains the stages of a documentary transaction and how the risks are allocated between buyers and sellers under different trade terms like CIF. The document also summarizes several cases that illustrate how these concepts are applied, such as who is responsible if goods are stolen during transport depending on whether it is an FOB or CIF contract.
Roles of strategic leaders
This document discusses various leadership roles and responsibilities. It begins by listing numerous roles of strategic leaders such as visionary, builder, acquirer, implementer, integrator, and motivator. It then provides more details on the roles of staying informed, promoting culture, adapting to change, exercising ethics, and making corrections. The document also discusses developing new capabilities through senior management intervention and cooperation. It outlines actions demonstrating social responsibility like family policies and community involvement. Finally, it discusses leading corrective adjustments through both reactive and proactive changes to strategy and alignment of activities.
Role of ecgc
The document provides information on various credit insurance products offered by ECGC (Export Credit Guarantee Corporation of India) to exporters and banks. It describes short-term and medium/long-term export credit insurance that protects against payment risks and lending risks. It also outlines domestic credit insurance, overseas investment insurance, and exchange fluctuation covers. Statistics on ECGC's growth over time and profiles of specific insurance policies are included.
Resolution of intl commr disputes
This document discusses various methods for resolving international commercial and business disputes. It notes that international litigation can be complicated by differences in judicial systems and challenges enforcing judgments across borders. The International Court of Justice allows disputes between nations but not individuals. Arbitration and mediation provide alternatives where a neutral third party decides the outcome (arbitration) or makes non-binding suggestions to reach a settlement (mediation). Other options include negotiation, expert determination, and utilizing dispute resolution processes under international treaties like the World Trade Organization. Overall, the best approach is to prevent disputes through risk management and carefully drafting contracts.
Presentation on india's ftp
This document provides an overview of India's foreign trade policy for 2009-2014. It discusses India's growing exports and trade share in recent years. It then outlines the economic crisis and declining exports. The policy aims to arrest this decline and achieve annual export growth targets. It describes various components of the policy including import/export controls, duty exemption schemes, and promotional measures. Stimulus measures by the government and RBI to boost exports are also summarized.
Players in ib
This document discusses various types of multinational enterprises (MNEs) and their international operations. It defines MNEs as firms that engage in foreign direct investment and own or control value-adding activities in more than one country. The document also discusses measures of internationalization like the transnationality index. Finally, it covers topics like developing country MNEs, small and medium enterprises, and "born global" firms that seek international operations from the start.
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Currency futures and forwards
- 2. OutlineOutline • Meaning of Futures • Features of Futures Contracts • Using Futures for Hedging and Speculation • Meaning of Forwards • Features of Forward Contracts • Using Forwards for Hedging and Speculation www.StudsPlanet.com
- 3. Futures ContractsFutures Contracts • A futures contract is an agreement to buy or sell a specified quantity of a specified asset at a certain point in the future at a price agreed upon today • In the case of currencies, it is an agreement to buy/sell a specified quantity of a specific currency at a pre agreed upon exchange rate at a certain time in the future www.StudsPlanet.com
- 4. Currency FuturesCurrency Futures • Trade on an organized exchange • Futures contracts are standardized with regard to the following – The asset on which you trade a futures contract – The contract size – Delivery arrangements • Daily price movement limits-limit up and limit down • Position limits • Mark to Market on a daily basis www.StudsPlanet.com
- 5. Corporate Use of CurrencyCorporate Use of Currency FuturesFutures • Hedge open positions in foreign currencies by buying/selling currency futures • Foreign currency cash inflows – Risk: domestic currency may appreciate – Strategy: sell foreign currency in the futures market at the futures exchange rate (Short) • Foreign currency cash outflows – Risk: domestic currency may depreciate – Strategy: buy foreign currency in the futures market at the futures exchange rate (Long) www.StudsPlanet.com
- 6. Forward ContractsForward Contracts • Agreement to buy or sell an asset at a certain time in the future for a predetermined price • Over-the-counter product that do not trade on any organized exchange • Delivery date can be any date that is mutually convenient to both the parties to the contract • Size can be customized • Not marked-to-market daily www.StudsPlanet.com
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