Firms use 'forward foreign exchange contracts' rather than a cash-and-carry strategy because

Question

Quizplus · Accepted Answer

A) Forward foreign exchange contracts typically have lower transaction costs compared to a cash-and-carry strategy.
B) If credit quality is poor, firms may face higher interest costs when trying to borrow in different currencies, making a forward foreign exchange contract a more attractive option.
C) Firms may not have the ability to borrow in different currencies, making a forward foreign exchange contract a necessary tool for managing currency risk. Therefore, all of the given choices are correct.

Firms Use 'Forward Foreign Exchange Contracts' Rather Than a Cash-And-Carry