What has occurred when one company arranges to buy a foreign currency sometime in the future, at an exchange rate quoted today?
A) The company has purchased a foreign currency option.
B) The company has entered a forward contract.
C) The currency has been devalued.
D) None of the above

Question

Quizplus · Accepted Answer

The company has entered into a forward contract, which is an agreement to buy or sell a specific amount of currency at a predetermined exchange rate on a specified date in the future. This allows the company to hedge against potential currency fluctuations and manage foreign exchange risk. A foreign currency option would give the company the right, but not the obligation, to buy the foreign currency at a specified rate, while a devaluation would be an external event affecting the value of the currency.

What Has Occurred When One Company Arranges to Buy a Foreign