252 CHAPTER 6. THE MARKET FOR CURRENCY FUTURES
- FRAs are tailor-made, over-the-counter instruments and are, therefore, more flexi-
ble than (standardized) futures contracts. Hedgers with small exposures may not
like a contract ofusd1m, and if three-month futures are used to hedge against
a change in the four-month or nine-month interest rate, the hedge is, at best,
imperfect. - The menu of underlyings is quite limited: three-month rates, and (in the bond
market, which we have not discussed) medium-term bonds.
For these reasons,FFs andFRAs are better suited for arbitrage or hedging than are
futures.