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    Question

    A spot purchase of a currency coupled with simultaneous

    forward sale of the same currency is called:
    A Forward Correct Answer Incorrect Answer
    B Futures Correct Answer Incorrect Answer
    C Swap Correct Answer Incorrect Answer
    D Option Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    The spot purchase of a currency coupled with a simultaneous forward sale of the same currency is commonly known as a "currency swap." A currency swap involves two parties exchanging a specified amount of one currency for an equivalent amount of another currency at the spot exchange rate. At the same time, the parties also enter into a forward contract to reverse the initial exchange at a predetermined future date and exchange rate. This allows both parties to fulfill their immediate currency needs while simultaneously mitigating future exchange rate risk. Currency swaps are commonly used by multinational corporations, financial institutions, and investors to manage foreign exchange exposures, hedge currency risks, and facilitate international trade and investments.

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