A company needs to buy US dollars in 90 days time.Therefore it signs a contract with a US bank to buy US dollars in exchange for euros 90 days from now at a specified exchange rate.The company would most likely use the _____ as a way to reduce exchange-rate risk if the value of the euro decreases substantially relative to the US dollar.
A)forward exchange rate
B)effective interest rate
C)spot exchange rate
D)internal forward rate
E)temporal rate

Question

Quizplus · Accepted Answer

A forward exchange rate contract allows a company to lock in an exchange rate today for a transaction that will occur in the future, thus hedging against the risk of unfavorable currency movements.

A Company Needs to Buy US Dollars in 90 Days