Financial Futures Market
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The financial futures market overtook futures trading in commodities in the 1980s, and this was a direct result of the increase in financial uncertainty. Dealing in this market is far less stringently supervised than is trading in commodity futures. The practice of trading in foreign currency developed in the 1960s and 1970s with dealing "forward" (a sale to be completed at an agreed to price three or six months ahead) as well as "spot" (an immediate sale). These markets were considered inflexible from the point of view of the customer, and contracts to buy and sell were tied to a specific date and were between particular buyers and sellers. Since 1972 in the United States, the financial futures markets have allowed for more general trading of futures or options on any currency's exchange rate, on government securities and thus on interest rates, or on stock-exchange indexes, meaning the general up or down movement of corporate stocks and shares. The contracts are for very large standard quantities and are to be completed on fixed delivery dates. In the meantime, such contracts can be retraded on the market (Strange, 1986, 113-114). There are 16 exchanges in the United States today that are authorized to trade futures contracts, and futures contracts can include financial instruments. A futures contract is a standardized agreement to buy or sell a specific amount of the commodity involved at a specified price and for delivery at a future date. Such
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and noted some months ago that the introduction of a single European currency on January 1, 1999 would change everything in the derivatives market, from the terms of the contract to the competitive position of Europe's leading financial futures exchanges. The size of the market is apparent from recent statistics:
1) At least 15 percent of the $40 trillion in outstanding over-the-counter derivatives are denominated either in French francs or Deutsche marks, and these currencies are scheduled to disappear in the middle of the year 2002.
2) Last year, nearly $5 billion in Deutsche mark and French franc interest rate swaps traded daily in London alone.
3) The most actively traded futures contracts in Europe are based on German and French government bonds and interest rates, and these will be profoundly affected by the introduction of a single currency for government bond issues in January 1999.
4) All foreign exchange and most interest rate risk will disappear within the common monetary area once exchange rates are irrevocably fixed, which will obviate the need for some cross-currency hedges (Peltz, 1996, 113-114).
Futures exchanges are springing up all over the world, many in emerging-market nations. Within a year or so, some 18
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Approximate Word count = 1367
Approximate Pages = 5 (250 words per page)
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