The Main Purpose in Contracting to Purchase Foreign Currency in the Forward

question 38

Multiple Choice

The main purpose in contracting to purchase foreign currency in the forward market is to:

• A) earn a premium on the exchange.
• B) lock into a future currency price now.
• C) take advantage of future price reductions.
• D) avoid the more expensive spot rates.

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Definitions:

Average Collection Period

The average time it takes for a company to receive payments owed by its customers.

Net Sales

Revenue from sales after deducting returns, allowances for damaged goods, and discounts.

Accounts Receivable

Amounts owed to a business by its customers for goods or services delivered on credit.

Allowance Method

An accounting technique used to estimate uncollectible accounts receivable and record bad debts expenses.