Currency Derivatives

Currency derivatives are financial contracts that derive their value from the exchange rate of two currencies. They are used by businesses and investors to hedge against fluctuations in currency prices, which can impact profits or costs. For example, a company expecting payment in a foreign currency might use a currency derivative to lock in an exchange rate, protecting itself from unfavorable currency movements. These instruments are traded on specialized markets and help manage currency risk without the need for actual currency exchange at the time of the contract. They are essential tools for global financial management and investment strategies.