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Essay / Research Paper Abstract
This 3 page paper explains what is meant by the term currency contracts and then goes on to consider the use of futures and options in terms of currency contracts. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEcurrcon.rtf
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Unformatted sample text from the term paper:
the contract is to be paid in the sellers own currency. Alternatively, if the contract is to be paid for in the buyers currency then the seller may want to
form a contract in order to sell the foreign currency they receive. There is always risk associated with goods transactions were there is a foreign currency due to the
movement of exchange rates. Currency contracts may be used as a way of reducing this risk. These are agreements or options to buy or sell currency at a set rate
at a set time in the future. This means that a company does not have to rely on the spot rate which can be volatile. The spot rates the rate
that is the market rate in response to supply and demand. The first type of currency contract may be a futures contract
which is traded on the futures exchange. This is a contract to make an exchange at a future date (Howells and Bain, 2003). A futures currency contract is a
legally binding agreement to deliver or take delivery of a certain amount of currency at a certain price (Howells and Bain, 2003).
The contracts are standardised with set terms of the way the contract are to be conducted (Demetrakakes , 1999). The only variable on the contracts will be the price that
they are being sold at, therefore all contracts are comparable, this make comparisons in the futures market slightly easier, but it also can mean that any direct comparison with the
spot market may not be so simple (Demetrakakes , 1999). The advantages are seen by many as outweighing the possible disadvantages
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