Money Market Hedge is a processes of borrowing and lending in multiple currencies, for example to eliminate currency risk by locking in the value of a foreign currency transaction in one’s own country’s currency. Here is an example of Money Market using futures contract with a bank: First, let’s assume that we sold merchandise to a British firm for 1 million pounds payable in 6 months. One alternative is to go to our bank who, deals in foreign exchange, and simply lock-in the value of the 1 million pounds sterling that we will receive in six months with a forward contract with the bank. Assume that the forward rate that the bank offers to us is USD 1.5179 per pound. Then, we are guaranteed that the amount we will receive will be the following: Value of 1 million pound receivable = 1,000,000 pounds * USD 1.5179 per pound = USD 1,517,900 What should be apparent, however, is that whether the pound appreciates or depreciates, we’ve locked-in the amount that we will receive: USD 1,517,900. An alternative to contracting privately with a bank is to contract for 1,000,000 pounds with futures contracts. Assuming that the futures rate of exchange is USD 1.5204 per pound, but will include transactions costs (commissions) of 0.2%, we will net the following amount when we receive the one million pounds in six = USD 1,520,400 pound- USD 3,041 pounds ($1,520,400*.002) = USD 1,517,359 Given the difference between the bank’s forward contract and the futures contract, it would be slightly more advantageous to use the forward contract (USD 1,517,900 – USD 1,517,359 = USD 541). The market effect is that there will be a slight increase in supply of pounds in the forward market (driving the rate down, with less demand in the futures market). They should be the same. Another alternative is to utilize the money markets to hedge the 1 million pound receivable. This relies upon borrowing and investing funds via the money markets and using the spot rate to lock-in the amount we will receive from the receivable. Assume the following: We can invest in British t-bills at a rate of 8% and we can borrow in Britain at a rate of 11%. Also, assume that we can invest in US t-bills at a rate of 5% or borrow in the US at an 8% rate of interest. Now, think about what we are trying to do. We will receive one million pounds in six months, so we want to move the pounds to the United States.Borrowing against the 1 million pound receivable: = 1,000,000 pounds/(1+.055) = 947,867 pounds Converting to US dollars at the spot exchange rate of USD 1.5385 per pound: = 947,867 pounds * USE 1.5385 / pound = USD 1,458,294 Investing the dollars at 5% in US t-bills for six month = USD 1,458,294 * 1.025 = USD 1,494,751 As is obvious, in this case the forward or futures contract approaches will yield more funds for the receivable than using a money market hedge. This is due to the fact that our borrowing rate in Britain is higher than British t-bill rates (a transactions cost).   Sources http://www.investorwords.com/3108/money_market_hedge.html http://209.85.173.132/search?q=cache:-d54WDA_wBYJ:faculty.business.utsa.edu/kfairchild/classes/4613/Fall2006/Hedging.ppt+Money+Market+Hedge&cd=3&hl=en&ct=clnk&gl=us