Currency Derivatives Explained
Type of currency Derivatives: -
Future: - A transferable futures contract that specifies the price at which a currency can be
bought or sold at a future date. Currency future contracts allow investors to hedge against
foreign exchange risk.
Option: -A contract that grants the holder the right, but not the obligation, to buy or sell
currency at a specified exchange rate during a specified period of time. For this right, a
premium is paid to the broker, which will vary depending on the number of contracts
purchased. Currency options are one of the best ways for corporations or individuals to hedge
against adverse movements in exchange rates.
Type of currency Derivatives: -
Future: - A transferable futures contract that specifies the price at which a currency can be
bought or sold at a future date. Currency future contracts allow investors to hedge against
foreign exchange risk.
Option: -A contract that grants the holder the right, but not the obligation, to buy or sell
currency at a specified exchange rate during a specified period of time. For this right, a
premium is paid to the broker, which will vary depending on the number of contracts
purchased. Currency options are one of the best ways for corporations or individuals to hedge
against adverse movements in exchange rates.
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