Comparing Futures and Forwards for Managing Currency Exposures in a South African Context

12 Pages Posted: 29 Mar 2013

See all articles by Antonie Kotze

Antonie Kotze

Financial Chaos Theory; Department of Finance and Investment Management

Date Written: October 1, 2010

Abstract

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

Kotze, Antonie, Comparing Futures and Forwards for Managing Currency Exposures in a South African Context (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=2240541 or http://dx.doi.org/10.2139/ssrn.2240541

Antonie Kotze (Contact Author)

Financial Chaos Theory ( email )

PO Box 16185
Doornfontein, 2028
South Africa

HOME PAGE: http://www.quantonline.co.za/

Department of Finance and Investment Management ( email )

PO Box 524
Auckland Park
Johannesburg, Gauteng 2006
South Africa

HOME PAGE: http://www.uj.ac.za

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