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  • Hedging

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    Aks Gee
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    The document outlines several methods for hedging foreign exchange (FX) risk, including using money markets, forward hedges through forward contracts, futures markets, options through options contracts that convey the right to purchase an underlying asset in the future without obligation, and swaps which involve purchasing one currency against another initially and reversing the transaction at a later date.

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    The document outlines several methods for hedging foreign exchange (FX) risk, including using money markets, forward hedges through forward contracts, futures markets, options through options contracts that convey the right to purchase an underlying asset in the future without obligation, and swaps which involve purchasing one currency against another initially and reversing the transaction at a later date.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
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    10 views1 page

    Hedging

    Uploaded by

    Aks Gee
    The document outlines several methods for hedging foreign exchange (FX) risk, including using money markets, forward hedges through forward contracts, futures markets, options through options contracts that convey the right to purchase an underlying asset in the future without obligation, and swaps which involve purchasing one currency against another initially and reversing the transaction at a later date.

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    of 1

    F.

    Use a standard spot


    (money market or artificial hedge) through the foreign exchange market to hedge FX risk.

    G. Use a forward hedge through the foreign exchange market.


    A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future. This asset can also be a foreign currency.

    H. Use the futures market to hedge.


    A futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.

    I. Use options to hedge.


    An Option is a contract that conveys the right, but not the obligation, to purchase in a future transaction some underlying security or a futures contract. Unlike in a forward or futures contract the option holder does not have to exercise his/her right to purchase the underlying asset. To hedge FX risk with options there are two possibilities. 1. 2. Options on Cash. Options on Futures.

    J. Swaps:
    Foreign exchange swaps are transactions which involve the purchase of one currency againstanother at an initial date and an agreement to reverse that transaction at a future date and at a specified rate.

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