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company through a U.S. exchange using U. what is the purpose of a derivative in finance.S. dollars (USD). Now the investor is exposed to exchange-rate danger while holding that stock. Exchange-rate threat the danger that the worth of the euro will increase in relation to the USD. If the value of the euro rises, any revenues the investor realizes upon offering the stock end up being less valuable when they are transformed into euros.
Derivatives that might be utilized to hedge this sort of danger consist of currency futures and currency swaps. A speculator who anticipates the euro to value compared to the dollar might benefit by utilizing a derivative that increases in value with the euro. When utilizing derivatives to speculate on the price motion of an underlying possession, the investor does not require to have a holding or portfolio presence in the hidden property.
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