Question : What is the term used to describe the exchange rate that is expected to prevail in the future, based on current market conditions?
Option 1: Spot exchange rate
Option 2: Forward exchange rate
Option 3: Cross exchange rate
Option 4: Nominal exchange rate
Correct Answer:
Forward exchange rate
Solution : The correct answer is b) Forward exchange rate
The forward exchange rate is the exchange rate that is expected to prevail in the future, based on current market conditions. It is the exchange rate at which two parties agree to exchange currencies at a future date. The forward exchange rate is determined by factors such as interest rate differentials, inflation expectations, and market sentiment. It allows businesses and individuals to hedge against potential exchange rate fluctuations by locking in a specific exchange rate for a future transaction.
