Financial Risk Management Flashcards by Pierre Sangan

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What are 3 advantages of currency futures over forwards

Lower transaction costs
The exact date of receipt or payment of the currency does not need to be known
Position can be closed at any time before settlement date

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What are 4 disadvantaged of currency futures over forwards

Contracts cannot be tailored
Only available in major currencies
Margin payments
Forward contracts are administratively easier

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What are the two types of hedge

How does each one work

Fair value and cash flow hedge

Fair value hedge: gain and loss on such a hedge is recognised in profit and loss

Cash flow hedge: gain and loss on such a hedge initially recorded in OCI (only effective portion) and subsequently reclassified to profit and loss when the underlying transaction takes place

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Financial Risk Management Flashcards

(3 cards)