Hedging The Risks Of Assets Invested Abroad: Forward VS. Future

Financial internationalization promotes the international transfer of capital. At present, many countries' financial industry has become totally international in the form of the offshore financial industry. The export of capital can increase the marginal efficiency of capital. This can help the surplus capital seek high returns. On the other hand, the investments across the countries have to face more complex risks than the domestic investments. These risks include the exchange rate risk , the volatility of underlying price and so on.Forwards and futures were developed to hedge the risk on the beginning of the design. In this paper, I begin from a kind of QDII funds, which re invested in precious metals market. First, the article introduces the risk of such products. Then, I establish the long-term domestic interest rate model, exchange rate model and the foreign market gold price model. On this foundation, I construct the risk-neutral measure, and the prices of future contracts and the forward contracts under the measure. In the principle of minimizing the fluctuation of portfolio value, I derive the two contract positions required, respectively. Finally, from the sense of the risk-return trade-off, this article gives the way to decide which contract should be selected in different situations. The article also shows an empirical demonstration using some historical data. This shows that our strategy is effective when hedging the risk.