Question

Select a company that trades foreign exchange futures or forward contracts. This may take some digging but consider the multinational enterprises discussed in this course. Why is the company trading these futures or forwards? In other words what is their purpose or objective – read disclosures, related footnotes, and MD&A of company. Look at the financial most recent statements and discuss if the futures or forwards seem to be adequately hedging the foreign currency exposure of the enterprise.

Answer 1

Those companies who are exposed to the global economy are often trading with derivatives in order to manage with their risk in association with the risk related to other countries and they can take derivatives in their own country or other country as well it will help them eliminate with the transaction risk along with translation risk.

Companies trading future & forward in order to help their risk associated with various exposures in the foreign market and foreign markets are highly volatile because it is dependent upon the situations of other country as well, so futures and forward options will be hedging any unfavourable movements.

The purpose of of taking these exposures in order to manage their risk related to transaction with the foreign players because they want to mitigate the risk and hedge their exposure to large extent as it will help these organisations in order to eliminate the risk to large extent and maximize their overall gain from the transaction because global environment is highly uncertain and hence there is always a risk related to loss on the transaction on the basis of the exchange rate difference and hence these organisations are trying to take positions in the future and forward in order to maximize their rate of return and minimise the risk.