Futures exchange market and an application for spot and future exchange rates in Turkey

In the early 1970s, the process that began the position of the fixed exchange rate system was replaced with the free-floating exchange rate system also brought new risks along. Foreign exchange rate risk that arising as the return of the free-floating exchange rate system may cause major economic losses of people and institutions. Foreign currency futures contracts which are used for the purpose of hedging of this risk provide with opportunities of managing the risk by fixing of free-floating rate for a later date.In the first section of this study, basic information about future markets, future markets of indexes, interest rates, commodities, stocks and foreign exchange, risk, types of risk and futures contracts used for types of risk are explained. In the second section, foreign currency futures markets are examined in details among the others. In the third section, Turkish Derivatives Exchange (TDE) is introduced, its structure and evolution are analyzed with statistical data. In this section, it is also examined the relationships between spot and future Turkish lira/US dollar exchange rates returns and volatilities for the period of 04.02.2005 to 20.05.2008 in Turkey by employing Granger Casuality Test. The characteristics of the series are explored by Augmented Dickey-Fuller and Phillips-Perron unit root tests and the diagnostic tests are reviewed. Empirical results show that the spot foreign exchange market generally more affected from the future foreign exchange market and returns and volatility in the future exchange market are higher.Key Words: Currency Futures Contract, Currency Futures Market, Risk Types and Hedging, Spot and Future Exchange Rates, Turkish Derivatives Exchange (TDE), Causality, Turkey.