Internet Application Questions:

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Q24-1

Where can I find futures contracts on Canadian Dollars? What are the terms associated with these contracts? To get some of the answers you should go to the website of the Chicago Mercantile Exchange.

I had heard this expression, the "hedge ratio," and wondered what it referred to. The answer may be found on the Finance Watch website on the multilingual finance glossary page.

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Answers:

A24-1

The Chicago Mercantile Exchange offers a number of futures contracts on various currencies. Its Canadian dollar futures contract is for $100,000 Canadian. The contract months are March, June, September, and December. That is, the futures contracts expire in these months. At any one time, there are six contracts available, which means an investor may obtain a futures contract with up to one and a half years to expiry.

The Chicago Mercantile Exchange also offers options on these future contracts.

A24-2

The hedge ratio is the "ratio of the number of option contracts needed to hedge a position in the underlying instrument." In this definition of hedge ratio, hedge refers to the process of ensuring that the value of a portfolio of stocks and options does not change when the price of the underlying stock changes.

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