Asked by Laura De Luna on May 29, 2024
Verified
In the context of managing exchange rate risks, which of the following statements is true of FX swaps?
A) The simultaneous purchase and sale of a given amount of currency is prohibited.
B) An option is provided to a buyer to purchase the right to buy a certain amount of currency at a given exchange rate.
C) A spot transaction is coupled with a forward transaction where both are completed at the same time.
D) The spot rate is a prediction of future forward rates so that a company can bypass uncertainty in the currency market.
FX Swaps
A financial agreement where two parties exchange currencies at a specified rate for a certain period, often used to hedge currency risks.
Spot Transaction
A financial contract for the immediate purchase or sale of a commodity, currency, or other asset, with delivery taking place immediately or within a short period.
Forward Transaction
A financial agreement to buy or sell an asset at a specified future date and price.
- Differentiate among the diverse strategies companies employ to mitigate exchange rate vulnerabilities.
Verified Answer
Learning Objectives
- Differentiate among the diverse strategies companies employ to mitigate exchange rate vulnerabilities.
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