Why use currency futures when it’s easier to use forward contract?

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This topic contains 2 replies, has 3 voices, and was last updated by avatar nefertary 3 years, 6 months ago. This post has been viewed 42 times

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    zigot14
    Member
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    Hi,

    Was just listening to your online lecture on currency future.
    Just a quick question – seeing that hedging using currency future is so much more complex, why would we wanna use it as oppose to using a forward rate contract?

    Thanks.


    Avatar of johnmoffat
    John Moffat
    Keymaster
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    The huge advantage of using futures is that you can finish the deal at any time.

    With forward contracts you are committed to exchange at the fixed rate on a fixed date. That is fine if you are certain of the date, but especially if you are receiving money you are unlikely to be certain of the date.

    With futures it does not matter on what date the transaction occurs (provided it is before the end of the future) because you just finish your futures deal on that date.

    It is much more flexible with regard to the timing.


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    nefertary
    Participant
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    In short futures are standardised contracts which are tradable on stock exchanges.

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