Which financial instrument provides a buyer the right but not the obligation to purchase or sell a fixed amount of currency at a prearranged price,within a few days to a couple of years?
A) Futures contract
B) Foreign currency option
C) Currency swap
D) Forward contract

Question

Quizplus · Accepted Answer

A foreign currency option provides a buyer the right (but not the obligation) to purchase or sell a fixed amount of currency at a prearranged price within a few days to a couple of years. This allows the buyer to take advantage of favorable currency fluctuations without the risk of losing money if the market moves against them. Futures contracts and forward contracts are similar in that they both involve a fixed price for a future date, but with a futures contract, the buyer is obligated to fulfill the contract, whereas a forward contract is an agreement between two parties and may not be standardized or traded on an exchange. A currency swap involves the exchange of cash flows in different currencies, so it is not quite the same as an option.

Which Financial Instrument Provides a Buyer the Right but Not