Question

Match List-I with List-II \[\begin{array}{|c|c|} \hline \textbf{Concepts} & \textbf{Their meaning} \\ \hline \text{(A) Foreign Exchange Swaps} & \text{(I) is a forward contract for standardized currency amounts and selected calendar dates traded on an organized market.} \\ \hline \text{(B) Forward Transaction} & \text{(II) refers to the avoidance of a foreign exchange risk or covering of an open position.} \\ \hline \text{(C) Foreign Exchange Futures} & \text{(III) refers to a spot sale of a currency combined with a forward repurchase of the same currency as part of a single transaction.} \\ \hline \text{(D) Hedging} & \text{(IV) refers to an agreement today to buy or sell a specified amount of a foreign currency at a specified future date at a rate agreed upon today.} \\ \hline \end{array}\] Choose the correct answer from the options given below:

• (A) - (II), (B) - (I), (C) - (III), (D) - (IV)
• (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
• (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
• (A) - (IV), (B) - (III), (C) - (II), (D) - (I)

Hint:

Foreign exchange swaps and futures are used for hedging and currency risk management in financial markets.

Answer 1

The Correct Option is B

Step 1: Understanding the terms.
- **Foreign Exchange Swaps (A):** These are contracts involving the exchange of currencies at two different times in the future. They are standardized contracts and traded in organized markets. Hence, they correspond to **(I)**.
- **Forward Transaction (B):** These are agreements to buy or sell a foreign currency at a specific rate for delivery at a future date, and are used for hedging against exchange rate fluctuations, so they match with **(II)**.
- **Foreign Exchange Futures (C):** These are standardized contracts for the exchange of currencies, which are combined with repurchase agreements in certain situations, so they correspond to **(III)**.
- **Hedging (D):** This refers to the process of managing foreign exchange risk, typically by entering into forward contracts today for a future date, so it corresponds to **(IV)**.

Step 2: Conclusion.
The correct match is (A) - (I), (B) - (II), (C) - (III), (D) - (IV).