Foreign exchange derivative

A foreign exchange derivative is a financial derivative whose payoff depends on the foreign exchange rate(s) of two (or more) currencies. These instruments are commonly used for currency speculation and arbitrage or for hedging foreign exchange risk. Specific foreign exchange derivatives, and related concepts include:

Instruments: Currency future Currency swap Foreign exchange binary option Foreign exchange forward Foreign exchange option Foreign exchange swap Forward exchange rate

Concepts: Carry trade Covered interest arbitrage Foreign exchange hedge Foreign exchange market Foreign exchange risk Foreign exchange spot Interest rate parity Uncovered interest arbitrage