Currency Future
A Currency Future is a transferable futures contract that fixes the price at which a foreign currency can be bought or sold at a specified future date. Investors use these financial future contracts to hedge against foreign exchange risk. These financial derivatives can also be used to speculate and, by incurring a risk, attempt to profit from rising or falling exchange rates. Investors can close out the contract at any time prior to the contract's delivery date.
The futures can be on the interbank cash rate or on the forward exchange rate of the currency. Currency futures are quoted in US-dollars per unit of foreign currency.
Currency futures were first created at the Chicago Mercantile Exchange (CME) in 1972. Some commodity traders at CME did not have access to the inter-bank exchange markets in the early seventies, when they believed that significant changes were about to take place in the currency market. They established the International Monetary Market (IMM) and launched trading in seven currency futures on May 16, 1972. Today, the IMM is a devision of CME. By March 2003 the total value of these derivatives traded at the Chicago Mercantile Exchange reached 347.5 billion US-dollars. The 'Merc' is still the biggest trading place in the world for currency futures. However, an increasing number of currency futures (also called forex futures or FX futures) are traded electronically.
See also
Categories: Derivatives