A forward market contract to buy Japanese yen three months in the future at a price of ¥105/$ will:
A) insulate the buyer from changes in interest rates.
B) protect the buyer from changes in exchange rates.
C) lock in a profit based on current exchange rates.
D)require delivery of the yen at the Chicago Board of Trade.

Question

Quizplus · Accepted Answer

A forward market contract to buy Japanese yen three months in the future at a price of ¥105/$ will protect the buyer from changes in exchange rates. This means that if the exchange rate of yen changes, the buyer will still pay the same price of ¥105/$, thus insulating them from losses due to fluctuations in the exchange rate. It does not necessarily insulate the buyer from changes in interest rates, lock in a profit based on current exchange rates, or require delivery of the yen at the Chicago Board of Trade.

A Forward Market Contract to Buy Japanese Yen Three Months