Thursday, June 11, 2009

Hedging instruments

An instrument that permits an individual or firm to ensure against asset price fluctuations is hedging instruments. these instruments include option and future. Option are financial contracts that grant the holder the right to buy and\or sell specified securities or goods in specific amounts and at specific prices for a specific period of time. Futures are financial contracts under which a person or firm agrees to provide a specific quantity of a security or a commodity at a specific price at some future time. By using options and future contracts, a person or firm can smooth out the risk of price fluctuations for purchase or sale of some other financial instruments,such as an exchange of another nation is currency in the foreign exchange market. Both options and futures are used extensively in foreign currency transactions.

No comments: