Currency

Currency Derivatives indicate the underlying assets which derive the price of derivatives. Similarly, underlying securities can be any such as stocks, commodities, currency, indices, etc. In terms of currency derivatives, the underlying asset or security is the currency exchange rate of a particular currency with some foreign currency. The derivatives of currency are used as a hedge to the risk of change in the actual exchange rate and minimize the loss arising out of it or negate the loss. The currency derivates are also used for speculations and arbitration purposes too.

Higher integration of global economies and global trade led to a rise in foreign exchange transactions. The rise in transactions led to heavy fluctuations in currency prices providing a market for forex trading. Currency trading offers a strong potential of making profit out of heavy fluctuations in currency prices in many circumstances of the market. The currency market has become more vibrant in terms of trading and rise in global trade. Many times governments too intervene in the forext market to save the domestic currency from falling. They do with the help of central banks who sell excess foreign exchange to save the domestic currency from falling further. Forex markets are highly volatile in normal market conditions too.