Consider the following: Forward contracts Swaps Currency futures Currency optionsHow many of the above are an example of an exchange-traded currency derivative?a)Only oneb)Only twoc)Only threed)All fourCorrect answer is option 'B'. Can you explain this answer?

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Consider the following:

Forward contracts
Swaps
Currency futures
Currency options

How many of the above are an example of an exchange-traded currency derivative?

a)
Only one
b)
Only two
c)
Only three
d)
All four

Correct answer is option 'B'. Can you explain this answer?

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Verified Answer

Consider the following: Forward contracts Swaps Currency futures Curre...

Context: The Reserve Bank of India (RBI) has postponed the implementation of its new norms for the exchange-traded currency derivatives (ETCD) market.
Futures and options are two of the most popular exchange-traded derivatives. Exchange-traded derivatives can be used to hedge exposure and to speculate on a wide range of financial assets, including commodities, equities, currencies, and even interest rates.
- Forward contracts are over-the-counter (OTC) derivatives, not exchange-traded.
- Swaps are also typically traded over-the-counter (OTC), not on regulated exchanges.

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Most Upvoted Answer

Consider the following: Forward contracts Swaps Currency futures Curre...

Exchange-Traded Currency Derivatives
Forward contracts, swaps, currency futures, and currency options are all examples of currency derivatives. However, only currency futures and currency options are exchange-traded currency derivatives.

Currency Futures
Currency futures are standardized contracts to buy or sell a specified amount of a particular currency at a predetermined price on a specified date in the future. These contracts are traded on organized exchanges such as the Chicago Mercantile Exchange (CME) and offer greater liquidity and transparency compared to over-the-counter (OTC) markets.

Currency Options
Currency options give the holder the right, but not the obligation, to buy or sell a specified amount of a currency at a predetermined exchange rate within a specified period. Like currency futures, currency options are exchange-traded and offer investors the opportunity to hedge against currency risk or speculate on exchange rate movements.

Conclusion
While forward contracts and swaps are also commonly used currency derivatives, they are typically traded over-the-counter (OTC) rather than on organized exchanges. Therefore, only currency futures and currency options qualify as exchange-traded currency derivatives in this context.

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