Which of the following would best provide the type of protection from exchange rate risk company A wants?

Company A is looking to protect itself from transaction exchange rate risk.

Company A does not require 100% of the value of transaction to be protected, and it would like the method it uses to have the following characteristics

• An agreed exchange rate for a specified period where both parties have a legal obligation

• A separation of the contract guaranteeing the pnce of the currency from the underlying transaction.

Which of the following would best provide the type of protection from exchange rate risk company A wants?
A . Future
B . Option
C . Forward contract
D . Floating exchange rate

View Answer

Answer: C