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. This allows companies to hedge against future fluctuations in currency exchange rates and provides price certainty for future transactions. It is not about earning a premium or taking advantage of future price reductions, and avoiding more expensive spot rates is not always the primary motivation.

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