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company through a U.S. exchange utilizing U. what is considered a "derivative work" finance data.S. dollars (USD). Now the investor is exposed to exchange-rate threat while holding that stock. Exchange-rate risk the risk that the worth of the euro will increase in relation to the USD. If the value of the euro increases, any profits the investor realizes upon offering the stock become less important when they are converted into euros.
Derivatives that might be used to hedge this kind of threat include currency futures and currency swaps. A speculator who expects the euro to value compared to the dollar could benefit by using a derivative that rises in value with the euro. When utilizing derivatives to speculate on the cost movement of a hidden possession, the investor does not require to have a holding or portfolio presence in the underlying possession.
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