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
Answer: C