Re: derivatives & uncertainty

["Abu Rizvi" <srizvi@xxxxxxxxxxxxx>]

Doug Henwood wrote:

> You mean a US multinational making an investment in Germany can't reduce
> its exchange rate uncertainty by taking positions in D-mark futures/forward
> contracts?
>
> Doug

Not so easily.  One might easily assume that investment--as opposed
to trade-- takes place, and returns to it occur, over a long time
horizon.  There are no futures/forward foreign exchange contracts
which extend more than a few years into the future.  There is thus no
easy way to hedge such an investment.  Hedging in foreign exchange
markets is not of much use, in other words, for reducing the
uncertainty associated with real investment flows.

--Abu.