The main purpose in contracting to purchase foreign currency in the forward market is to:
A)Earn a premium (interest) on the exchange
B)Lock into a price now
C)Take advantage of future price reductions
D)Avoid the more expensive spot rates

Question

Quizplus · Accepted Answer

The main purpose of contracting to purchase foreign currency in the forward market is to lock into a price now. By doing this, the purchaser is able to avoid the risk of future exchange rate fluctuations and ensure that they will be able to buy the foreign currency at a set price on a future date. This can also be helpful in budgeting and forecasting for future transactions.

The Main Purpose in Contracting to Purchase Foreign Currency in the Forward