The Text Discusses Using Futures, Forwards, and Swaps to Hedge

question 300

Essay

The text discusses using futures, forwards, and swaps to hedge. For each, give a specific example
of a firm that needs to hedge and how it might use the contracts to do so. (For example a wheat
farmer needs to sell wheat, thus sells futures to lock in a price at harvest.)

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Definitions:

Foreign Exchange Markets

Markets where participants can buy, sell, exchange, and speculate on currencies. These markets are critical for facilitating international trade and investment.

Trading Floor

The physical location where financial trading activities take place, such as in a stock exchange.

Foreign Firm

A company that is incorporated under the laws of a country other than the one in which it does its main business.

Direct Quote

The value of foreign exchange quoted with the domestic currency for every unit of the overseas currency.