Chapter 5: CURRENCY FUTURES AND OPTIONS
Multinational companies (MNCs) normally use the spot and forward markets for international transactions. They also use currency futures, currency options, and currency futures options for various corporate functions. While speculators trade currencies in these three markets for profit, MNCs use them to cover open positions in foreign currencies.
This chapter is divided into three closely related sections. Section 5.1 discusses currency futures. With a currency futures contract, one buys or sells a specific foreign currency for delivery at a designated price in the future. Section 5.2 describes currency options. A currency option is the right to buy or sell a foreign currency at a specified price by a specified date. Section 5.3 examines currency futures options. A currency futures option is the right to buy or sell a futures contract of a foreign currency at any time for a specified period.