Comparing Futures and Forwards for Managing Currency Exposures in a South African Context
12 Pages Posted: 29 Mar 2013
Date Written: October 1, 2010
For internationally oriented firms or individuals that choose to eliminate the effects of fluctuating exchange rates, either currency forward contracts or currency futures can be used to fulfil this requirement. Both tools essentially lock in prospective exchange rates, thereby eliminating both risk and opportunity, and thus eliminate currency risk completely. Though similar in their result, futures and forwards have a number of institutional differences that may foster different preferences among different users. This research paper strives to highlight those differences, allowing the selection between these two alternatives to be made on a rational basis.
Keywords: FX, risk management, forwards, currency, foreign exchange
JEL Classification: C61, G12, G13, G14, G15
Suggested Citation: Suggested Citation