Annex II: Uses of Foreign Exchange Instruments
Author: International Monetary Fund
Language:
English
Keywords:
WEFS; currency; deutsche mark; market; futures contract; interest rate; hedge portfolio; treasury bill futures; hedging strategy; out-of-the-money option; Hedging; Currency markets; Currencies; Options; Money markets; Global

Abstract

Trading in the foreign exchange markets takes place for a variety of motives. This annex discusses three aspects of foreign exchange transactions: first, the arbitrage that links the forward and spot markets; next, the use of foreign exchange markets as “synthetic money markets”; and then the use of foreign exchange instruments to hedge foreign currency risk, which covers first the basic hedging techniques typically used by individuals and investors and then the dynamic hedging strategies typically used by banks to hedge exposure associated with issuing currency options. The consequences of these various strategies for foreign exchange market behavior are also examined.

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Cover World Economic and Financial Surveys, 1993
World Economic and Financial Surveys, 1993
International Capital Markets: Part I
Author: International Monetary Fund
ISBN:
9781557752901
ISSN:
0258-7440
Publication Date:
01 Jan 1993
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557752901.083
Pages:
88

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