Since the 1970s futures contracts have proven a real success story, but in the course of the crisis, several futures-trading businesses went bankrupt. Because of a lack of trust, futures trading volumes started decreasing. But, even though the futures market has been adversely affected, futures contracts still serve as a fundamental risk management tool.
This paper provides an insight into the use of futures contracts in risk management, trading on US exchanges. After a brief introduction to the topic of futures contracts, current literature will be reviewed. The literature review focuses primarily on current issues and developments on the futures market, while the third chapter explains step by step - based on an example of foreign exchange hedging - the use of futures contracts as well as how futures transactions are processes. Finally, the third chapter summarises relevant criteria a company has to reflect when considering to invest in futures contracts.
Table of Contents
- Executive Summary
- Introduction
- Literature Review
- Problem definition
- Risk exposure
- Exchange of foreign currency at spot rate in October
- Exchange of foreign currency at spot rate in December
- Exchange of foreign currency using FX futures
- Conclusion
Objectives and Key Themes
This paper aims to provide an overview of the use of futures contracts in risk management, focusing on trading on US exchanges. It examines the role of futures contracts in mitigating risk, particularly in the context of foreign exchange hedging. The paper also explores current issues and developments within the futures market.
- The role of futures contracts in risk management.
- Current issues and developments in the futures market.
- Step-by-step explanation of using futures contracts for foreign exchange hedging.
- Criteria for companies considering investment in futures contracts.
- Analysis of the impact of the financial crisis on futures trading.
Chapter Summaries
Introduction: This chapter introduces the topic of futures contracts and their importance as a risk management tool. It sets the stage for the subsequent literature review and practical application of futures contracts in foreign exchange hedging. It highlights the ongoing relevance of futures contracts despite challenges faced due to past financial crises and associated loss of confidence in the market.
Literature Review: This section provides a comprehensive overview of existing literature on futures contracts, focusing on contemporary trends and challenges within the futures market. The review likely discusses the evolution of futures trading, its regulatory landscape, and perhaps explores the impact of technological advancements on trading practices. It serves as a foundation for understanding the current state of the futures market and informs the subsequent practical example.
Problem definition, Risk exposure, Exchange of foreign currency at spot rate in October, Exchange of foreign currency at spot rate in December, Exchange of foreign currency using FX futures: These sections collectively demonstrate the application of futures contracts in mitigating risk, specifically focusing on foreign exchange hedging. A hypothetical scenario is likely presented, illustrating the potential risks of exposure to fluctuating exchange rates and how the use of futures contracts can mitigate these risks. This detailed example likely includes calculations and comparisons between different scenarios to highlight the effectiveness of futures contracts in risk management. The different subsections likely break down the example step-by-step, showing the process of using futures contracts for hedging.
Keywords
Futures contracts, risk management, US exchanges, foreign exchange hedging, financial crisis, market volatility, speculation, commodity trading, derivatives, price risk.
FAQ: Comprehensive Language Preview on Futures Contracts in Risk Management
What is the main topic of this paper?
This paper provides a comprehensive overview of using futures contracts for risk management, specifically focusing on foreign exchange hedging on US exchanges. It examines how futures contracts mitigate risk, explores current market issues and developments, and provides a step-by-step example of their application.
What are the key themes explored in the paper?
Key themes include the role of futures contracts in risk management, current issues and developments in the futures market, a practical application of futures contracts for foreign exchange hedging, criteria for companies considering futures contract investment, and an analysis of the financial crisis' impact on futures trading.
What does the paper cover in its different sections?
The paper includes an executive summary, introduction, literature review, problem definition, risk exposure analysis, step-by-step examples of foreign currency exchange at spot rates (October and December) and using FX futures, and a conclusion. The literature review explores existing research on futures contracts, while the practical examples demonstrate the application of futures contracts in hedging foreign exchange risk.
What is the purpose of the chapter summaries?
The chapter summaries provide a concise overview of each section's content. The introduction sets the stage, the literature review provides background research, and the practical sections demonstrate the use of futures contracts in a hypothetical scenario to illustrate risk mitigation strategies.
What are the key steps explained in the practical application sections?
The practical sections walk through a hypothetical scenario, comparing the risks of exposure to fluctuating exchange rates without and with the use of futures contracts. This detailed, step-by-step example likely includes calculations to demonstrate the effectiveness of futures contracts in managing foreign exchange risk.
What are the keywords associated with this paper?
Keywords include: Futures contracts, risk management, US exchanges, foreign exchange hedging, financial crisis, market volatility, speculation, commodity trading, derivatives, and price risk.
What is the target audience of this paper?
The target audience is likely academics and professionals interested in risk management, particularly those involved in finance, trading, or investment, and those interested in learning about the practical application of futures contracts in hedging foreign exchange risk.
Where can I find more information on this topic?
The paper includes a literature review section that points to relevant existing research on futures contracts, risk management, and the specifics of the US futures market. Further research can be conducted using the keywords provided.
- Citar trabajo
- Hedwig Heerdt (Autor), 2012, The general use of futures contracts in risk management companies can use trading on US exchanges, Múnich, GRIN Verlag, https://www.grin.com/document/207374
