1.Currency derivatives can be classified into instruments with Essay

1.Currency derivatives can be classified into instruments with symmetrical(fixed)and asymmetrical(open) outcomes.Define their respective characteristics, and use examples to illustrate your answer - essay Examplefutures are symmetrical if one can enter into a forward at a particular price, the price might either go up or come down, and so, one can make either profit or a loss. Forwards are quite common in commodities, and can be used either for speculation or for hedging.Eg If a person has an order to ship myriad tons of steel for a occlusion of 6 months at a prefixed price of $1000 per ton. And the person is expecting the price of steel to increase. So, to hedge against the price chance, the person enters into a forward purchase agreement, for 10000 tons 6 months hence. The person position is now fully hedged if the price of steel increases as expected, person will either claim a delivery from the forward tradeer, or a net settlement. If the price comes down, person will be obl iged to settle by making a stipend for the price difference to the forward seller, but will be fully compensated by the pre-fixed price it gets from its own forward sale contract.2. Options have an asymmetric return profile an alternative is an pickaxe with one party. The option will be exercised only when the purchaser of the option is in-the-money. Therefore, the only loss in an option is the cost of writing and carrying the option. Hence, options have an asymmetric return profile. On the other hand, the option-seller only makes returns by way of fees or premium for selling the option, against which the person takes the risk of being out-of-money. If the option is not exercised, person makes fees, but if the option is exercised, considerably, the person may lose.For example, if one person is holding a security of $1000 buys an option to put the security at its current price with some other person. Now if the price of the security goes down to $900. The person may exercise to se ll the option of the security to some other person at the agreed price of $1000 to protect against the loss of account of turn down in the market value. If, on the other hand, the price of the security is increased to $1100,