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: Terminology Clarification.
- Foreign Exchange Swaps (A): Standardized currency exchange contracts for future transactions, traded on organized markets. Matches (I).
- Forward Transaction (B): Agreements to buy/sell foreign currency at a set rate for future delivery, used for hedging exchange rate risk. Matches (II).
- Foreign Exchange Futures (C): Standardized currency exchange contracts, sometimes combined with repurchase agreements. Matches (III).
- Hedging (D): Strategy for managing foreign exchange risk, often via forward contracts for future dates. Matches (IV).

Step 2: Identification of Correspondences.
The correct pairings are (A) with (I), (B) with (II), (C) with (III), and (D) with (IV).