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company through a U.S. exchange using U. what is the purpose of a derivative in finance.S. dollars (USD). Now the financier is exposed to exchange-rate danger while holding that stock. Exchange-rate danger the threat that the worth of the euro will increase in relation to the USD. If the worth of the euro increases, any profits the investor recognizes upon offering the stock end up being less valuable when they are converted into euros.
Derivatives that could be used to hedge this type of threat include currency futures and currency swaps. A speculator who expects the euro to value compared to the dollar could benefit by utilizing a derivative that increases in worth with the euro. When using derivatives to hypothesize on the cost movement of a hidden possession, the financier does not need to have a holding or portfolio presence in the underlying property.
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