ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A currency futures contract specifies a standard volume of a particular currency to be exchanged on a specific settlement date.
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The futures rate is the exchange rate at which an entity can purchase or sell a specified currency on the settlement date in accordance with the futures contract.
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The future spot rate is the spot rate that will exist at some future time; hence that rate is uncertain today.
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Some MNCs involved in international trade does not use the currency futures markets to hedge their positions.
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Detailed explanation-1: -Answer = Money must change hands prior to the delivery date of the commodity.
Detailed explanation-2: -Currency futures are futures contracts for currencies that specify the price of exchanging one currency for another at a future date. The rate for currency futures contracts is derived from spot rates of the currency pair. Currency futures are used to hedge the risk of receiving payments in a foreign currency.
Detailed explanation-3: -The correct answer is A. Future contracts have less default risk because the exchange acts as the counterparty for all the transactions.
Detailed explanation-4: -Underlying Asset: This is the currency exchange rate that has been specified. Expiration Date: This is the final settlement for cash-settled futures. Size: The sizes of contracts are all the same. Margin Requirement: An initial margin is necessary to enter into a futures contract.