The Learn About Futures Insider for August 18, 2011: US Dollar Index

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Since the dawn of commerce and trade, currency has evolved to facilitate the process by providing a medium of exchange and helping people represent a store of value. The circulating medium, whether coins or paper money, was developed in many cultures. The U.S. dollar is a globally recognized hard currency. The U.S. Dollar Index is a measure of the value of the U.S. dollar against six major world currencies using a weighted geometric mean. U.S. Dollar Index futures are traded on the Intercontinental Exchange (ICE) and the CME, but for this lesson, specifications will refer to the ICE contract.

Contract Size:$1,000 x Index Value

Price Quote & Tick Size:US Dollar Index points, calculated to three decimal places .010 = $10; minimum tick size is .005 = $5 per contract

Contract Months: March, June, September, December

Trading Specs: Electronic Trading Hours 8:00 pm to 6:00 pm the following day on the Intercontinental Exchange (Sun - Fri) *the trading platform is available 30 minutes before the opening for order entry. Open on Sunday night is 6:00 PM ET; Pre-Open at 5:30 PM ET

Daily Price Limit: None

Trading Symbols: DX

US Dollar Index Facts

The level of the U.S. Dollar Index indicates the average value of the dollar relative to the agreed 1973 base of 100.00, when major trading nations agreed to allow their currencies to float freely against each other. It is computed using the weighted average of currencies with a highly developed market.

The current basket of currencies used to calculate the U.S. Dollar index includes twenty countries: the fifteen nations in the Euro Zone and five other countries who make up the basis of global trade with the United States. The currencies and their relative weights are as follows:



Key terms for this market include:

Hard Currency – This term refers to a currency which is traded around the world and is seen as a stable store of value. This perception is usually based on the issuing country’s policies and its economic and political situation.

Quantitative Easing – Refers to a monetary policy which increases the money supply when the central bank buys securities and then infuses financial institutions with capital. The risks associated with this kind of policy include the possibility of hyper-inflation and devaluing the dollar.

Trade Weighted Dollar Index – An index created by the Federal Reserve that is a weighted average of a large number of currencies, far more than the ICE US Dollar Index. This index was created following the introduction of the euro.

Key Uses

Besides the obvious implications and uses for currency, the U.S. Dollar Index has investing applications as well. As a financial instrument, U.S. Dollar Index futures are often used as a means to hedge currency exchange risk. Since the U.S. dollar is such a huge part of international trade, this can be a significant market for other businesses as well.


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