Dominate the ACCA F9 Financial Management Exam 2025 – Master Your Finance Future!

Question: 1 / 410

What is a forward rate in the context of foreign exchange?

The rate for immediate currency delivery

The current market price for a currency

The exchange rate for currency at a future date

In the context of foreign exchange, a forward rate refers to the exchange rate agreed upon today for a transaction that will occur at a specific future date. This rate is determined based on the spot rate, adjusted for the interest rate differential between the currencies involved. By locking in a forward rate, parties can hedge against potential fluctuations in exchange rates, providing certainty regarding the future costs or revenues associated with currency transactions.

In essence, the forward rate is essentially a tool used by businesses and investors to manage currency exposure over time, making option C the correct choice. This understanding is important for anyone dealing with foreign exchange markets and financial management, as it informs decisions related to currency risk and financial planning for future transactions.

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The historical average exchange rate

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