The over-the-counter market-based FX instrument that locks in an exchange rate on a currency pair that will apply at specified future date is:
A) futures contracts.
B) options on foreign currency.
C) forward exchange contracts.
D) currency swaps.

Question

Quizplus · Accepted Answer

The instrument described in the question is a forward exchange contract, which is an OTC agreement to buy or sell a certain amount of currency for a fixed price on a future date. Futures contracts (A) are similar to forward contracts but are traded on organized exchanges. Options (B) give the buyer the right but not the obligation to buy or sell a currency at a fixed price, while currency swaps (D) involve exchanging principal and interest payments on a loan in one currency for those in another currency.

The Over-The-Counter Market-Based FX Instrument That Locks in an Exchange