In an ever uncertain world, derivatives are important in managing currency risk

The purpose of this paper is to highlight the key benefits of using South African currency derivatives to offset exposure to currency risk in global trading activities.  Learn more about why the South African Capital Markets should be your next venture. 

The rand has a history of volatility – appreciating one day and weakening the next, mainly taking its direction from the performance of the global economy, specifically the relative performance of emerging markets, South African economy, commodity prices and political developments.

As a free-floating currency, the rand’s value in relation to other currencies is determined by demand and supply, strengthening when its demand increases and depreciating when its demand drops. These fluctuations, and sometimes relative stability in the value of the rand, may require companies, investors, traders, importers and exporters to use foreign exchange derivatives to hedge themselves against the volatility.

While foreign exchange derivatives have been in existence for more than 40 years, the Johannesburg Stock Exchange (JSE) launched its own currency derivatives platform in June 2007 which allowed for the on-exchange trading of currency futures and options.