Recent Developments in International Currency Derivatives Market: Implications for Poland

Introduction

The floating exchange rate system that prevails today among key international currencies of industrial countries brings a considerable degree of uncertainty of exchange rate movements. In order to hedge the risk of unfavorable appreciation or depreciation of a single currency, exporters, importers and financial investors have developed a vast range of currency derivative instruments that allow to lock-in in advance the rates of a future currency conversion. These financial instruments are also used by speculators willing to arrange future currency selling (or buying) contracts while hoping to buy (or to sell) the currency at favorable anticipated exchange rates in the future, thus exposing their financial position to the risk of currency fluctuations.