Economics Derivatives Questions
Foreign exchange derivatives impact international trade by providing a means for businesses to manage and mitigate currency exchange rate risks. These derivatives, such as currency futures, options, and swaps, allow companies to hedge against potential losses due to fluctuations in exchange rates. By using these instruments, businesses can lock in favorable exchange rates, reduce uncertainty, and protect their profit margins. This, in turn, promotes stability and confidence in international trade, as companies can engage in cross-border transactions with reduced currency risk.