Despite the costs associated with a forward contract, companies often prefer it to protect themselves against a potential larger downside loss.

Question

Quizplus · Accepted Answer

Forward contracts allow companies to lock in prices for currencies, commodities, or other financial instruments, providing a hedge against the risk of price fluctuations. This can protect against potential larger losses that might occur due to volatile market conditions, making the costs associated with entering into these contracts worthwhile for risk management purposes.

Despite the Costs Associated with a Forward Contract, Companies Often