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Derivative instruments are widely used in international business finance to manage systemic or market risk. These financial tools help firms hedge against unpredictable movements in currency exchange rates, interest rates, commodity prices, and stock indices. Systemic risk refers to the possibility that a major disruption in a financial institution or market segment could trigger widespread instability. Market risk involves losses due to market fluctuations. Derivative instruments serve as protective mechanisms, allowing firms to reduce their exposure to such risks. Forwards are customized contracts between two parties to buy or sell an asset at a specified price on a future date. _________ _______ ______ _____ _________ ______.
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