The advantage of this technique is its flexibility

This provides a rapid response to variations in the ratio of assets and liabilities denominated in foreign currencies, so this tactic can be successfully used for daily monitoring of the level of foreign exchange position of the bank. But a necessary condition for the effectiveness of this method is the existence of a liquid futures market, which would help carry out transactions with derivative instruments at any time and in any quantity. Currency futures is a contract to buy or sell a standardized amount of foreign currency rates on standardized specification and agreed price. Futures contracts are concluded only in the stock market, which increases their reliability and level of insurance currency risks. Futures contracts can be used to hedge against the profits of foreign bank branches. The financial content of hedging using futures is that the hedger may transfer an amount of risk to professional speculators who provide liquidity to the derivatives market. Futures contracts are not binding, in contrast to the forward and, as statistics show, performed in an international market in only 5% of cases. Futures provide market participants to operate in the reliability of transactions and high liquidity of contracts, but on a limited number of currencies that are exchanged. An option is also a kind of contract, under which the buyer has the right within a certain period or at a fixed price to buy a certain amount of foreign currency (option type number - call) or sell it (put option type - rit). The owner of the option decides whether to use or not given to him by law, depending on the dynamics of exchange rates. In all cases, the risk to the owner of the option, previously limited to the price of the option, and theoretically unlimited gain and in practice it is very significant. Category: Management Operations Commercial Bank