Compare and Contrast Foreign Currency Options and Futures

question 86

Essay

Compare and contrast foreign currency options and futures. Identify situations when you may prefer one vs. the other when speculating on foreign exchange.

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Definitions:

Open Market Operations

The purchase and sale of government securities by a central bank to control the money supply and interest rates.

Monetary Policy

Actions undertaken by a country's central bank to control the money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

Discount Rate

The rate of interest that central banks impose on credits extended to commercial banks and other financial entities.

Reserve Requirements

Regulations set by central banks determining the minimum amount of reserves that must be held by a commercial bank, a repeat of the Fed's specific requirement but applicable globally.