Currency Futures

Currency Future is a futures contract between two counterparties who agree to exchange one currency for another in the future at a particular price which is decided on the purchase date of the contract. These futures contracts are binding, as both the parties have obligations to execute the trade on the specified pre-decided date.

Currency Futures are mainly used to hedge against foreign exchange risk, as the investor can lock the exchange price afore, against the exchange rate fluctuations in the future. Further, they are used to speculate so as to gain profit from the rise and fall in the exchange rates. 

For example: An Indian company has a German client and for its service, it will receive EUR 100,000 after two months. Suppose, during these two months the Rupee appreciates, in such a case the Indian company will receive fewer Rupees per EUR which can affect its earnings. Therefore, it can enter into a Currency Futures contract in which it can specify the time and the price at which it will exercise the contact so that the uncertainty of the exchange rate can be coped with.