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This paper aims to develop hedging strategies using both futures and forward contracts and issuing risky debt when financially constrained firms are forced to operate in long horizon.

The authors present a model for developing hedging strategies using both futures and forward contracts and issuing risky debt. A theoretical model employing stochastic differential equations for forward hedging is illustrated with a numerical example over parameter values consistent with the literature.

A financially constrained firm with limited cash balance must hedge its liquidity with both future and forward contracts and issue risky debt to support its long-term operations. The firm can issue a minimal amount of risky debt by adding forward contracts into hedging and can increase its value higher than that when hedging with only futures contracts. We show numerically that hedging with both futures and forward contracts allows the firm to issue minimal risky debt in increasing its firm value.

When Metallgesellschaft nearly collapsed in 1993, it offered long-term forward contracts to its customers and attempted to hedge its risk by rolling over series of short-term futures contract. It created the situation of inherent mismatch in maturity structure. A financially constrained firm operating in a long horizon appears to commit its liquidity as long-term forward contracts, which cannot be fully hedged with series of futures contacts. The firm should hedge its liquidity with both futures and forward contracts and avoid liquidation with deadweight costs in its long-term operation.

This is the first study examining hedging strategies with both futures and forward contracts.

Whereas the last decade has seen remarkable growth in United States (US) futures business, in the United Kingdom (UK) the volume in some sectors has been disappointing. Although new markets are continuing to appear (such as the Baltic International Freight Futures Exchange, BIFFEX, which opened for business in May 1985), on 31 January 1985 the London Gold Futures Market (LGFM) announced its intention to close and from time to time there has been speculation that LIFFE, the London International Financial Futures Exchange, may not be able to continue in its present form because of lack of business (although the range of traded instruments continues to expand). Some factors that would tend to discourage business are:

The forward curve dynamics in the Nordic electricity market is examined. Six years of price data on futures and forward contracts traded in the Nordic electricity market are analysed. For the forward price function of electricity, we specify a multi‐factor term structure models in a Heath‐Jarrow‐Morton framework. Principal component analysis is used to reveal the volatility structure in the market. A two‐factor model explains 75 per cent of the price variation in our data, compared to approximately 95 per cent in most other markets. Further investigations show that correlation between short‐ and long‐term forward prices is lower than in other markets. We briefly discuss possible reasons why these special properties occur, and some consequences for hedging exposures in this market.

Introduction In a world of increased uncertainty about the future value of exchange rates and increased visibility of foreign exchange gains and losses, it is not surprising that both commercial and financial firms have become more concerned about minimizing foreign exchange risks. Once a company becomes involved in international trade, be it the formation of a foreign subsidiary or simply the import or export of goods, it subsequently becomes subject to foreign exchange risk exposure. Foreign exchange risk exposure can be broken down into three categories for further development; these are real economic exposure, translation exposure, and transaction exposure.

This paper aims to compare and contrast the concept of conventional futures contract from the Islamic law of contract perspectives. The underlying theory and practice of Islamic finance is based on the principles of Islamic law of contract. Although the necessity of derivative instruments such as the case with futures contract is essential for developments in Islamic finance, the permissibility of using these instruments still remains a debatable issue.

The paper discusses arguments for and against using derivative instruments as in futures, for example, in light with the Qur’an and Sunnah (the Prophet’s traditions), as well as the views of classical scholars, jurists and contemporary researchers. Arguments for and against are analysed systematically to derive a logical conclusion.

The study finds that majority scholars consider futures contracts as non-compliant with the Islamic law due to the fact that selling something that does not exist, deferment in the both counter values, gharar or ambiguity and excessive risk taking, pure speculation and sale of one debt for another.

The study focuses narrowly on conventional futures contract. Analysing other financial derivative contracts could be a future research endeavour.

The study has so far found the verdict of impermissibility of conventional futures contract in its current form as has been argued by majority scholars in the premise that they do not comply with the Islamic law. Policymakers and industry practitioners need to take this opinion of majority scholars while developing new Islamic financial derivatives.

To the best of the author's knowledge, the present research is the first attempt so far that explained the validity of conventional futures by analysing arguments of classical and contemporary jurists, scholars and researchers.

Discusses the attractions of property to institutional investors. Describes the evolution of future markets from forward contracts in commodity markets and financial and stock market index futures to the current UK proposal for property index futures. Concludes that property professionals should make every effort to understand and develop the proposed market in a way which will benefit property investors most effectively.

Incorporating exchange rate fluctuations into the analysis of an international investment substantially alters the expected risk and return characteristics of the investments. With fluctuating rates, the value of a successful investment property could be devastated when converted to the investor′s home currency. This risk should be recognized and incorporated into the investment decision but, as results show, the ultimate strategy may not be periodic adjustments which have been used by many researchers, nor trying to hedge fully as others have suggested, but rather to examine returns in home market currency and leave exchange rate exposure decisions to the currency portfolio managers. Explores the possibilities of mitigating currency risk through several hedging instruments – forward and futures contracts, options, back‐to‐back loans and currency swaps. Results from a survey of international investors are also summarized and comments provide substantial evidence that investors are unsophisticated in dealing with currency questions.

Examines the cost performance of various strategies for managing foreign exchange risk in international sourcing. The strategies represent a broad spectrum of approaches to exchange risk, ranging from naïve to active. Of particular interest is the comparison of those strategies which use exchange rate forecasts with those which do not. Focuses on movements in the German mark/US dollar exchange rate for the period January 1986 through December 1990. Employs a historical simulation methodology to compare the performance of various strategies over this time frame. The results suggest that active approaches to exchange rate management warrant further attention.