Trade Forex - Forex Market

An instrument with its value derived from the value of another instrument, commodity, or currency is classified as a "derivative." The value of a treasury bill futures contract depends on the value of the cash market treasury bill on which it is based; thus, the contract is a derivative of the cash bill. A British pound futures option is price-dependent on the spot and forward exchange rate between the dollar and the pound; therefore, the option is a derivative of the spot currency. Derivatives trade in markets that are parallel to the underlying cash market, whatever the item may be.
How does the concept of parallel market hedging apply to hedging methods such as operating strategies or financial adjustments? Say a company hedges by producing in the same country and in the same local currency as its overseas marketing subsidiary.
Because both operations are transacted in the same market place (the spot market), one cannot be considered a derivative of the other. Is this, then, a parallel market hedge? We can indeed consider this to be a parallel market hedge, with one "leg" in each, by expanding the definition of parallel markets; therefore:
Any two transactions denominated in a single currency are parallel market transactions if they offset exposure, but are single-market transactions if they cancel out exposure.
This completes the definition of hedging. Although somewhat contrived, it permits the financial advisor to speak to prospective users about parallel market hedging, and include rather seamlessly every form of exposure management, be it market transactions, operating strategies, or financial adjustments.

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