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CONTENTS
CHAPTER 1: DERIVATIVES AS A RISK MANAGEMENT TOOL.................................................4
1.1 What is risk? .........................................................................................................................................................4
1.2 Risk Management..............................................................................................................................................5
1.3 Types of Traders in the Derivatives Markets......................................................................................5
1.3.1 Hedgers..............................................................................................................................................................5
1.3.2 Speculators ......................................................................................................................................................5
1.3.3 Arbitrageurs.....................................................................................................................................................6
CHAPTER 2: INTRODUCTION TO CURRENCY MARKETS...........................................................7
2.1 Exchange Rate........................................................................................................................................................7
2.2 Fixed Exchange Rate Regime and Floating Exchange Rate Regime.......................................8
2.2.1 Fixed exchange rate regime:...................................................................................................................8
2.2.2 Floating exchange rate regime: .............................................................................................................8
2.3 Factors Affecting Exchange Rates ...............................................................................................................8
2.4 Quotes .........................................................................................................................................................................9
2.5 Tick-Size...................................................................................................................................................................10
2.6 Spreads .....................................................................................................................................................................10
2.7 Spot Transaction and Forward Transaction .........................................................................................11
CHAPTER 3: CURRENCY FUTURES………………………...............................................................12
3.1 Forward Contracts..............................................................................................................................................12
3.2 Futures Contracts...............................................................................................................................................13
3.3 Pricing of Futures Contracts.........................................................................................................................13
CHAPTER 4: STRATEGIES USING CURRENCY FUTURES ........................................................17
4.1 Hedging using Currency Futures ................................................................................................................18
