International Financial Management Assignment Example | Topics and Well Written Essays - 500 words

International Financial Management - Assignment Example hedgerow is one feature of the forward market. MNCs. Hedging the amount that they are supposed to receive or impart in foreign silver will make the spot rate unimportant for them till their time to come payment. There is in truth little difference between the forward and early market. But the differences are very important. Unlike the forward market, which is characterized by personalized contracts with no initial payment necessary, future market ache standardized contracts with at least marginal payment paid initially. This implies that the amount that is being transacted can be of any value. Future contracts specify the volume of a particular currency to be used for effect at the specified date. Secondly, for forward contracts there is no organized exchange present in the future contracts as the contracting parties directly do the transactions. Thirdly, the contract size depends on the contracting parties in national of the forward contracts. But, for the future contracts, contract size is standardized. Fourthly, future contracts are government- regulated and bears low risk epoch forward contracts are unregulated and are high-risk bearing as there are chances of default. (Madura 2009, pp. 108-110)Speculators leverage currency futures to capitalize their expectation about the ups and downs associated with respect to currency movement. Suppose a speculator expects gustatory perception of a particular currency in the future. They can then buy future contracts and hence hook the price of that currency for a specific settlement date. On this date they can buy their currency at a rate specified in the futures contract and cover it at the spot rate, which is less(prenominal) than the rate specified in the futures contract. Ifthe spot rate has appreciated, then they extract profit. Different expectations of the speculators guide their decisions to sell and purchase future contracts.Corporations use cur rency futures to hedge and thus reduce their