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Question: How do exchange-traded currency futures enable hedging?

Answer: On a currency exchange platform, you can buy or sell currency futures. If you are an importer, you can buy futures to "lock in" a price for your purchase of actual foreign currency at a future 10 date. You thus avoid exchange rate risk that you would otherwise have faced. On the other hand, if you are an exporter, you sell currency futures on the exchange platform and "lock in" a sale price at a future date. However, it may be noted that the contract will be marked to market at the daily settlement price and profit or loss will be paid / collected on a daily basis.



Category Currency Trading Interview Questions & Answers - Exam Mode / Learning Mode
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Question: How do exchange-traded currency futures enable hedging?
Answer:

On a currency exchange platform, you can buy or sell currency futures. If you are an importer, you can buy futures to "lock in" a price for your purchase of actual foreign currency at a future 10 date. You thus avoid exchange rate risk that you would otherwise have faced. On the other hand, if you are an exporter, you sell currency futures on the exchange platform and "lock in" a sale price at a future date. However, it may be noted that the contract will be marked to market at the daily settlement price and profit or loss will be paid / collected on a daily basis. Source: CoolInterview.com



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