In FX business (not saying “system”) , most of the initial learning obstacles are math-related. A large part of it is due to the need to forecast fx rates. “Hedge” and “risk” are all about uncertainty in FX rate movements.

To avoid confusion, in this blog we don’t really talk about FX Futures contracts at all. “Future” doesn’t mean “Futures contract”.

If you as an enterprise just needs to convert currency at the spot rate, it’s straightforward. But any solution to future-proof your corporate FX needs tends to involve derivatives tied to future FX rates. Incidentally, every derivative (forwards, options, swaps ..) has an expiration date.

Whenever you consider future FX rates, the 2 countries’ interest rates come into play. I feel the Interest-Rate-Parity formula is quite basic and unavoidable, just like PCP and price/yield conversion. Other obstacles include

– Cross rate calc

– triangular arbitrage