This lesson provides a detailed examination of the derivative instruments used to manage foreign exchange risk and interest rate risk.

3.1 Currency Forwards
Outright forward contracts fix the exchange rate for a future settlement date. They can be booked, cancelled, extended, or rolled over according to market conventions .

3.2 Currency Futures
Currency futures are standardised forward contracts traded on exchanges. Key features include contract size, tick size, margin requirements, and marking-to-market .

3.3 Currency Options
Currency options give the holder the right, but not the obligation, to buy (call) or sell (put) a currency at a specified strike price. Options can be used for hedging or speculation and are characterised by premiums, intrinsic value, and time value .

3.4 Swaps and Other Instruments
Currency swaps involve the exchange of principal and interest payments in different currencies. Non-deliverable forwards (NDFs) are used for currencies with capital controls or restricted convertibility .