A contract to buy Japanese yen three months forward 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 Nasdaq Exchange.

Question

Quizplus · Accepted Answer

A contract to buy Japanese yen three months forward at a price of ¥105/$ will protect the buyer from changes in exchange rates. It is a type of hedging strategy where the buyer locks in a fixed exchange rate to mitigate the risk of unfavorable exchange rate movements and ensure a certain level of price certainty. The contract does not 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 Nasdaq Exchange.

A Contract to Buy Japanese Yen Three Months Forward at a Price