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

question 44

Multiple Choice

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.

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Definitions:

Price Effect

The effect of a price change of a product or service on its supply or demand.

Oligopolist

A firm in an industry with only a small number of producers.

Monopolist

A single seller in a market who has significant control over the supply of a particular good or service, often leading to less competition and higher prices.

Tit-For-Tat

A strategy in game theory where a participant mimics the actions of their opponent, typically in retaliation or as a form of reciprocal behavior.