Futures, Options & Money Market Hedges

1. Futures Contracts compared to Forward Contracts2. Currency Options > Options Vocabulary

> Options Dynamics> Options vs. Forwards & Futures

3. Money Market Hedges> On Balance Sheet vs. Off Balance Sheet Derivatives> Deposits (Depos) and Borrowing

Futures Contracts compared to Forward Contracts(A)

1. Trading > Futures traded at Futures Exchange (IMM)

> Forwards traded by telephone2. Contract Size

> Futures Contract size is fixed> Forward Contract size is any amount

3. Delivery Date> Futures can be delivered only a few days a year> Forwards can be delivered any business day

Futures Contracts Compared to Forward Contracts (B)

4. Margins> Futures Exchanges require clients to post a margin as collateral> No margins or collateral required to do forward contracts

5. Credit Risk>The Exchange’s Clearing House is the counterparty for all futures contracts> The credit risk is borne by each party to a forward contract

6. Quotes> Futures quotes use the dollar as the reference currency> Forward Contract quotes follow FX Market conventions