Which of the following is a function of the foreign exchange market?

Question

Quizplus · Accepted Answer

The foreign exchange market provides some insurance against foreign exchange risk by allowing companies to purchase or sell currencies in advance to lock in a favorable rate and reduce the risk of currency fluctuations.

Answer: B
 The foreign exchange market also helps protect short-term cash flow from adverse changes in exchange rates by allowing companies to quickly buy or sell currencies to meet payment obligations.

Answer: D
 By allowing companies to buy or sell currencies as needed, the foreign exchange market can help reduce the economic exposure of a firm to currency fluctuations.

Answer: E is incorrect as the foreign exchange market does not enable companies to engage in capital flight when countertrade is not possible.

Answer: C is incorrect as the foreign exchange market does not eliminate volatile changes in exchange rates, but rather reflects them as they occur.

Which of the Following Is a Function of the Foreign