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THE TREASURY FUNCTION

External hedging techniques

• Money market hedge

• The use of derivatives

Definition: A derivative is a financial instrument

whose value is derived from the performance of

underlying market factors (securities, interest

rates, exchange rates, etc.)

Derivative transactions include:

• Forward exchange contracts (FEC)

• Foreign exchange futures contracts

• Foreign exchange option contracts

• Currency swap NB: Calculations in chapter 15

Managerial Finance.
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