CHAPTER 6

Currency Forwards and Futures

CHAPTER OBJECTIVES

After studying this chapter, you should be able to:

  1. Discuss the principal characteristics of currency forward contracts and currency futures contracts.
  2. Distinguish between currency forwards and currency futures in terms of the cash flows that they generate.
  3. Understand the relationship between currency futures prices and spot rates.
  4. Discuss the pricing of currency futures.
  5. Explain the concepts of hedge ratio and cross hedging.

Introduction

Individuals and firms including government organizations are exposed to risk in situations where their holdings and commitments can change in value due to unexpected changes in business conditions. The more open (in terms of trade and investments) ...

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