The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients.
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Currency futures contracts have become standard fare and trade readily in the world money centers.
Peter Simpson thinks that the U.K. pound will cost $1.43/£ in six months. A 6-month currency futures contract is available today at a rate of $1.44/£. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit?
A. Sell a pound currency futures contract.
B. Buy a pound currency futures contract.
C. Sell pounds today.
D. Sell pounds in six months.
If a global financial market made up of 101 countries, each country represented by a individual i has a random perishable output Yi,with the mean of 𝜇, variance σ^2, the outputs in different countries are uncorrelated, if the resident of country i sell off a fraction 100/101 of his claim to residents in other countries prior to the realization of the random national outputs and using the proceeds to purchase a fractional claim 1/101 of Yj for all j≠i, then what is the variance for individual i?
A. σ^2/100
B. σ^2/101
C. σ^2/99
D. None of the above is right
Which of the following statements regarding currency futures contracts and forward contracts is NOT true?
A futures contract is a standardized amount per currency whereas the forward contact is for any size desired.
B. A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year.
C. Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages.
D. All of the above are true.