Question
In: Finance
Is the use of currency derivatives advisable or are they purely speculative instruments?
Is the use of currency derivatives advisable or are they purely speculative instruments?
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Expert Solution
Answer :
In the whole derivatives segment currency derivatives are the most popular hedging instruments as compared to other instruments.
The exporters and importers through out the world using currency derivatives for hedging their currency exchange risk.
For example Mr .x from India importing oil from saudi for 100000 USD , the payment is made after 1 month , at present USD value = 63.5 rupees after one month this may be increased or decreased , if the value of USD increased ,then it will be an extra burden to an importer so to hedge with currency derivatives is the best one to that importer , not only in this case, every where through out the globe the usage of currency derivatives for hedging is increasing day by day.
Currency derivatives are advisable for any purpose whether it is a hedging ,speculative or arbitrage. whatever it may be these are most popular and highly advisable hedging instruments.
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