A ________ is written between a firm and a bank and it fixes the currency exchange rate for a transaction that will occur at a future date.

Question

Quizplus · Accepted Answer

A currency forward contract is written between a firm and a bank to fix the currency exchange rate for a transaction that will occur at a future date. This contract specifies the amount, currency, and date of delivery. It is used to manage foreign exchange risk by allowing firms to lock in a specific exchange rate for a future transaction. Currency options contracts, call options, and put options are different types of financial instruments used for hedging currency risk but they do not fix the exchange rate like a forward contract does. A currency loan contract is a type of loan agreement that specifies the currency in which the loan will be given and repaid, but it does not fix the exchange rate.

A ________ Is Written Between a Firm and a Bank