FERA and QRA are two different types of financial instruments used in the financial markets. FERA stands for Foreign Exchange Risk Agreement, while QRA stands for Quoted Risk Amount. Both instruments are used to manage foreign exchange risk, but they have different features and benefits.
What is FERA?
FERA is a type of forward contract that allows two parties to agree on an exchange rate for a specific amount of currency at a future date. The contract is binding, and the parties are obligated to exchange the currency at the agreed-upon rate. FERA contracts are typically used to hedge against foreign exchange risk, which is the risk that the value of a currency will change before a planned transaction takes place.
What is QRA?
QRA is a type of option contract that gives the buyer the right, but not the obligation, to buy or sell a specific amount of currency at a specific price on or before a future date. The buyer of a QRA contract pays a premium to the seller of the contract in exchange for this right. QRA contracts are typically used to speculate on the future movement of currency prices.
Key Differences between FERA and QRA
The key differences between FERA and QRA are as follows:
- Purpose: FERA contracts are used to hedge against foreign exchange risk, while QRA contracts are used to speculate on the future movement of currency prices.
- Obligation: FERA contracts are binding, while QRA contracts are not. The buyer of a QRA contract has the right, but not the obligation, to buy or sell the currency at the agreed-upon price.
- Premium: FERA contracts do not require a premium, while QRA contracts do. The buyer of a QRA contract pays a premium to the seller of the contract in exchange for the right to buy or sell the currency at the agreed-upon price.
Which Instrument is Right for You?
The choice of whether to use a FERA or QRA contract depends on your specific needs and objectives. If you are looking to hedge against foreign exchange risk, then a FERA contract may be a good option. If you are looking to speculate on the future movement of currency prices, then a QRA contract may be a good option.
Conclusion
FERA and QRA are two different types of financial instruments that can be used to manage foreign exchange risk. FERA contracts are binding and do not require a premium, while QRA contracts are not binding and do require a premium. The choice of which instrument to use depends on your specific needs and objectives.
