Question : What is the term used to describe the rate at which one currency can be exchanged for another in the future, based on a contractual agreement?
Option 1: Spot exchange rate
Option 2: Nominal exchange rate
Option 3: Real exchange rate
Option 4: Forward exchange rate
Correct Answer: Forward exchange rate
Solution : The correct option is d) Forward exchange rate
The forward exchange rate refers to the exchange rate at which two parties agree to exchange currencies at a future date, typically beyond the spot date. It is determined by the current spot exchange rate and adjusted for factors such as interest rate differentials between the two currencies and market expectations. The forward exchange rate allows businesses and investors to lock in an exchange rate for future transactions, providing them with certainty regarding the future value of their currency exchange.
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