EECS 3101 Lecture Notes - Lecture 39: Futures Contract, Canadian Dollar, Spot Contract
28 Jun 2018
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EECS 3101 Lecture 39 Notes
Introduction
How Firms Use Currency Futures
To minimize its risk in such a guarantee, the CME imposes margin requirements to cover
fluctuations in the value of a contract.
The initial margin requirement is typically between $1,000 and $2,000 per currency
futures contract.
When the value of the futures contract declines over time, however, the buyer may be
asked to maintain an additional margin called the maintenance margin.
Margin requirements are not always required for forward contracts owing to the more
personal nature of the agreement
The bank knows the firm it is dealing with and may trust it to fulfill its obligation.
Corporations that have open positions in foreign currencies can consider purchasing or
selling futures contracts to offset their positions.
Purchasing Futures to Hedge Payables
The purchase of futures contracts locks in the price at which a firm can purchase a
currency.
EXAMPLE
Teton Co. orders Canadian goods and upon delivery will need to send C$500,000 to the
Canadian exporter.
So Teton purchases Canadian dollar futures contracts today, thereby locking in the price
to be paid for Canadian dollars at a future settlement date.
By holding futures contracts, Teton does not have to worry about changes in the spot
rate of the Canadian dollar over time.
Selling Futures to Hedge Receivables
The sale of futures contracts locks in the price at which a firm can sell a currency.
Document Summary
To minimize its risk in such a guarantee, the cme imposes margin requirements to cover fluctuations in the value of a contract. The purchase of futures contracts locks in the price at which a firm can purchase a currency. The sale of futures contracts locks in the price at which a firm can sell a currency. Karla co. sells futures contracts when its exports are paid for in a currency that it will not need (karla accepts a foreign currency at the importer"s request). Minimize its risk in such a guarantee. The cme imposes margin requirements to cover fluctuations in the value of a contract. The initial margin requirement is typically between ,000 and ,000 per currency futures contract. When the value of the futures contract declines over time, however, the buyer may be asked to maintain an additional margin called the (cid:862)maintenance margin. (cid:863)
