In the Context of Managing Exchange Rate Risks, Which of the Following

question 16

Multiple Choice

In the context of managing exchange rate risks, which of the following statements is true of forward exchange rate transactions?

• A) It involves the purchase of foreign currency at present-day rates in anticipation of future transactions.
• B) It involves the simultaneous purchase and sale of a given amount of currency at two different forward rates.
• C) The forward rate at which a company and a bank agree to exchange currency is same as the spot rate.
• D) The forward rate is a prediction of future spot rates that allows a company to bypass uncertainty in the currency market.

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Definitions:

Liquidity

A measure of a company's or individual's ability to meet short-term obligations, often associated with the ease of converting assets into cash.

Liabilities

Financial obligations or debts that a company owes to external parties, which must be settled over time through the transfer of assets, provision of services, or other value.

Effective-Interest Method

An accounting technique used to amortize the discount or premium on bonds payable over the life of the bonds, more precisely matching interest expense with the accounting periods in which they are incurred.

Unamortized Bond Discount

The portion of a bond discount that has not yet been expensed to interest expense over the life of the bond.