Currency Future Contracts - Essay Example

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Currency Future Contracts

Some buyers and sellers of the instrument used it for speculation. The named instruments are not only used to hedge against unfavorable movements in the value of currency but also in other economic factors such as interest rate, exchange rates and natural calamities (CME group, n.d .). These contacts are reliant on some underlying assets thus are called the derivatives. First, swap is a derivative that involves an agreement between two or more traders to exchange the denomination of their cash flows. For instance, consider two investors from the US and the UK, who have invested in the local government securities. The two investors would agree that the US investor receives the cash flow of the UK investor, denominated in Sterling pound. The same would happen to the UK in investor. Secondly, an option is a contract that grants the buyer rights but not an obligation to participate in the contract, on maturity. On the other hand, the contract obliges the seller to participate when the contract matures. Thirdly, a forward is a contract between the counterparts to exchange currencies at a predetermined exchange rate. That is, the parties agree to exchange their currency at a given exchange rate agreed now, but during a future transaction, say after one year. ...Show more

Summary

Currency futures contracts Name Instructor Task Date Introduction This paper presents an assessment of the currency futures contracts. The assessment covers on the following: types of future contracts currently traded on the CME; whether the currency prices have risen of fallen in the recent past; factors that influence the future prices; and other general issues relating to the currency…
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