A Note on Currency and Index Futures

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Case Details:

Case Code : MISC013
Case Length : 18 Pages
Period : -
Pub Date : 2003
Teaching Note : Available
Organization : -
Industry : Banking & Financial Services
Countries : -

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

Types of Futures

On the basis of the underlying asset, the different types of futures contracts traded can be grouped into the following four categories:
• Currency Futures (where the underlying asset is a currency such as euro, yen, dollar, etc.)...

Trading Using Currency Futures

An investor can limit his/her incoming and outgoing cash flows in one currency with respect to another currency by purchasing (long hedge) or selling (short hedge) foreign exchange futures...

Trading Using Index Futures

The following are the fundamental modes of trading on the index futures market:

Hedging
• Long on Security, Going short on Index Futures (say Nifty)
When investors' trade, they may be inclined to purchase a security, which they believe is undervalued...

Conclusion

Futures can result in serious losses, if used without proper knowledge. Hence, the prerequisite for trading in futures is a thorough knowledge of the futures market...

Exhibits

Exhibit I: Difference between Futures and Forwards Contracts
Exhibit II: A Note on Analyzing Futures Prices


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