197 1 after the collapse of the Bretton Woods system in the United States, great changes have taken place in foreign exchange, which has affected the exports and international reserves of various countries. Therefore, in order to avoid foreign exchange risks, foreign exchange futures have been introduced, and they are the earliest financial futures.

The original purpose of futures is to avoid price risk.

Hedging is an activity to reduce or eliminate the future spot market risk by using the futures market.

Such as foreign exchange options, the principle is the same.

Example: It is estimated that a company has an account receivable of ~ 10000 a month. A company paid the option fee, bought an option and sold the pound at the price of $65,438 +0.75. LMC

One month later, according to the company's financial situation and the exchange rate changes in the foreign exchange market, the following decisions were made.

Analysis: LMC

1) Receives accounts receivable. If the pound appreciates and the dollar depreciates, that is, 1.85, the option will become invalid and still be traded in the spot market at the present value, and the option fee will be lost.

2) When receiving the accounts receivable, if the pound depreciates and the dollar appreciates, that is, 1.62, use the option to sell it at 1.75 to avoid the exchange rate risk.

3) If the accounts receivable are not received, if the pound appreciates and the dollar depreciates, that is, 1.85, the option becomes invalid. Lost the option fee.

4) If the accounts receivable are not received, the pound will depreciate and the dollar will appreciate, that is, 1.62. If you buy the pound at the market price, exercise the option and sell it at 1.75, making a profit of 1300 USD.

Foreign exchange futures is a standardized contract, and both parties agree to exchange one currency for another at a certain time in the future according to the agreed ratio. Refers to futures contracts with exchange rate as the subject matter, which are used to avoid exchange rate risks. It is the earliest variety in financial futures. Since the first foreign exchange futures contract was launched by the International Money Market Department of the Chicago Mercantile Exchange 1972 in May, with the development of international trade and the acceleration of world economic integration, forex futures trading has maintained a vigorous development momentum. It not only provides effective hedging tools for investors, financial institutions and other economic entities, but also provides new profit-making means for arbitrageurs and speculators.