Exchange rate index futures are futures based on an exchange rate index. The exchange rate index refers to the weighted average of the value of a currency relative to several other currencies, and the weight depends on the importance of each currency in international trade. Because in the foreign exchange market, a currency may appreciate against a certain currency, and may depreciate against other currencies. Therefore, to reflect the overall trend of this currency, it is necessary to determine the average value of this currency relative to several other currencies by the weight of each currency in the country’s trade transactions.
Common exchange rate indexes currently include: Federal Reserve Exchange Rate Index; International Monetary Fund Multilateral Exchange Rate Model MERM; Special Drawing Rights Exchange Rate Index; Morgan Guaranteed Trust Company Exchange Rate Index; United States Department of Agriculture Exchange Rate Index US-DA. The advantage of foreign exchange rate index futures is that the exchange rate price is formed through competition in the open market, which is relatively reasonable; it can be transferred before delivery to reduce and diversify the exchange rate; it provides a market that can be entered at any time. The disadvantage is that the variety, quantity, and delivery date of the transaction are all fixed and standardized, and may not be exactly the same as the number and date of the transaction at the time, so there are certain restrictions and lack of flexibility.