The Eurozone has fared slightly better than the US in terms of currency strength. The Euro currently trades $1.4715/EUR still off from its all time highs of 1.6040 in the summer of 2008. The ECB maintains its interest rates at a steady 1% since May 7 2009 (fxstreet.com). This has caused exports to increase and help boost the Eurozone economy. The leaders are the usual suspects of BMW, Deutsche Telecom, Nokia and Mercedes Benz (WSJ.com).

When one first hears the word future contract they might wonder how a contract could exist if it’s in the future? The term future contract according to Wikipedia means to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price (the futures price). So what does this mean? Basically a future contract gives the order an obligation to make or take the delivery under the contract terms on the settlement date. The holder of the contract has the right to take legal action if the future contract is not met.

Currency futures contracts (commonly called just futures) are sold on the Chicago Mercantile Exchange (CME). “…Currency futures, which are contracts for specific quantities of given currencies; the exchange rate is fixed at the time the contract is entered into, and the delivery date is set by the board of directors of the International Monetary Market (IMM)”

Future contracts are the standardized contract that trades in the future markets for specific delivery date. Forward contract are private deals that are signed between two members. The future contract act as a price discovery role in the forecast of exchange rate risk. It exchanges to the International Monetary Market for stability. The IMM also serves as the outlet for hedging future contract. The future contract required a standard quantity of available currency, it has to be at a fix exchange rate, and at a set delivery date only.

Future contract are traded on Chicago Mercantile Exchange, it helps to minimize your loss and risk. Trade takes place in currency futures, which orders specific quantities of given currencies, the exchange rate is fixed at the time the contract is entered into, and the delivery date is set by the board of directors of the International Monetary Market (IMM).

Futures can be used as arbitrary, speculation or hedging tools. This paper is dealing with the letter one, the hedging tool. First of all the author wants to explain what hedging contains. Hedging is generally a finance transaction as a safeguard against risks such as exchange rate fluctuations or changes of commodity prices. The person or company who wants to hedge a transaction, also called the Hedger, is doing another transaction which is directly linked to the underlying transaction.

When managing your interest rate expense and risk, companies can use a variety of forward and future contracts. These include, forward forwards, forward rate agreements, and Eurodollar futures. I will discuss a little about each contract.  Forward Forwards A forward forwards is a contract that fixes an interest rate today on a future loan or deposit. When producing the loan you must include the amount of the deposit or loan, along with the start and ending dates of the future interest rate period.  

Trading takes place in currency futures, which are contracts that are requiring a standard quantity of an available currency with a fixed exchange rate when the contract is entered. Futures Contract are standardized contracts that trade on organized futures markets for specific delivery dates only. The delivery dates is set by the directors of the International Monetary Market (IMM). However with all the risks in the market, the Chicago Mercantile Exchange (CME) provides outlet for currency speculators and for people who is looking to reduce their currency risks.

As we all know the transaction that has the highest risk could potentially yield the greatest return. However, when dealing in the international market some risks aren't preferred; such as in currency markets. To hedge this risk companies engage in the trading of futures contracts. These contracts require a set amount of available currency to be purchased, on a set date, and at a fixed exchange rate.