The main purpose in contracting to purchase foreign currency in the forward market is to:

Question

Quizplus · Accepted Answer

The main purpose of contracting to purchase foreign currency in the forward market is to lock into a future currency price now. This helps businesses and investors to hedge against potential future currency fluctuations and protect themselves from unexpected losses. It also provides greater certainty in financial planning and budgeting. The other options - earning a premium on the exchange, taking advantage of future price reductions, and avoiding more expensive spot rates - are not the main purposes of forward contracting.

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