FIN 435 Lecture Notes - Lecture 4: Cash Flow, Absolute Advantage, Foreign Exchange Option

• School: Old Dominion University
• Department: Finance
• Course: FIN 435
• Professor: Bruce Seifert

Document Summary

Both forward and future contracts allow one to purchase currencies for future delivery. In the u. s. the most important market for foreign currencies futures is the. International money market (imm), a division of the chicago mercantile. At the imm can trade for nine currencies, gold, 90-day u. s. treasury bills, and eurodollar time deposits. Contracts traded on imm are interchangeable with those on the singapore. Purchaser of futures contract initially deposits money or collateral. Speculation often performed in the futures market. Short positions if you believe the foreign currency will fall in value (relative to the futures price). You agree now to sell in the future at a fixed price without owning the foreign currency and then before the selling date you must buy the foreign currency. For example, sell a peso for $. 10 (delivery in 3 months) and hope to buy the peso for $. 09 before 3 months.