Currency certificate helps to reduce risk of changes in exchange rate. It gives the right to exchange certain sum of currency to another currency on pre-determined exchange rate, usually up to certain date. The certificate doesn't indicate the owner, so it can be selled.
The currency certificate is usually used in international trade, when the company wants to buy goods in another country, but with minimal exchange rate risk. The organization which wants to use currency certificates for risk management should buy them regularly, when the price is low enough. In such case the certificates may be used in future international trade situations.
- Cushman, D. O. (1985). Real exchange rate risk, expectations, and the level of direct investment. The Review of Economics and Statistics, 297-308.
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