Hedging with currency futures

[abhishreshthaa]

Hedging with currency futures:


Hedging contractual foreign currency flows with currency futures is in many respects similar to hedging with forward contracts.


A receivable is hedged by selling futures while a payable is hedged by buying futures.


A futures hedge differs from a forward hedge because of the intrinsic features of future contracts.


The advantages of futures are, it easier and has greater liquidity. Banks will enter into forward contracts only with corporations (and in rare cases individuals) with the highest credit rating.


Second, a futures hedge is much easier to unwind since there is an organized exchange with a large turnover.

 

[rosemarry2]

Hedging with currency futures:


Hedging contractual foreign currency flows with currency futures is in many respects similar to hedging with forward contracts.


A receivable is hedged by selling futures while a payable is hedged by buying futures.


A futures hedge differs from a forward hedge because of the intrinsic features of future contracts.


The advantages of futures are, it easier and has greater liquidity. Banks will enter into forward contracts only with corporations (and in rare cases individuals) with the highest credit rating.


Second, a futures hedge is much easier to unwind since there is an organized exchange with a large turnover.

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