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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.
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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