EECS 3101 Lecture Notes - Lecture 34: Chicago Mercantile Exchange, Cme Group, Australian Dollar
28 Jun 2018
School
Course
Professor
EECS 3101 Lecture 34 Notes
Introduction
Contract Specifications
A buyer of a currency futures contract locks in the exchange rate to be paid for a foreign
currency at a future time.
Alternatively, a seller of a currency futures contract locks in the exchange rate at which
a foreign currency can be exchanged for the home currency.
In the United States, currency futures contracts are purchased to lock in the amount of
dollars needed to obtain a specified amount of a particular foreign currency
They are sold to lock in the amount of dollars to be received from selling a specified
amount of a particular foreign currency.
Most currency futures are traded at the Chicago Mercantile Exchange (CME), which is
part of CME Group.
Currency futures are available for 19 currencies at the CME.
Each contract specifies a standardized number of units, as shown in Exhibit 5.2.
Standardized contracts allow for more frequent trading per contract and hence for
greater liquidity.
There are some currencies for which the CME offers ͞E-mini͟ futures contracts, which
specify half the number of units of a typical standardized contract.
The CME also offers futures contracts on cross exchange rates (between two non-dollar
currencies).
Trades through the CME are normally executed by the Globe x platform.
The typical currency futures contract is based on a currency value in terms of U.S.
dollars.
However, futures contracts are also available on some cross rates, such as the exchange
rate between the Australian dollar and the Canadian dollar.
Thus, speculators who expect that the Australian dollar will move substantially against
the Canadian dollar can take a futures position to capitalize on their expectations.
Document Summary
A buyer of a currency futures contract locks in the exchange rate to be paid for a foreign currency at a future time. However, futures contracts are also available on some cross rates, such as the exchange rate between the australian dollar and the canadian dollar. Thus, speculators who expect that the australian dollar will move substantially against the canadian dollar can take a futures position to capitalize on their expectations. A currency futures contract locks in the exchange rate to be paid for a foreign currency at a future time. Alternatively, a seller of a currency futures contract locks in the exchange rate at which a foreign currency can be exchanged for the home currency. In the united states, currency futures contracts are purchased to lock in the amount of dollars needed to obtain a specified amount of a particular foreign currency.
