Which exchange rate would most likely be used for a good or service that will be delivered at a future date?

• A. Spot
• B. Current
• C. Forward
• D. Swap rate

Answer: (C)

When a good or service will be delivered in the future, you lock in the exchange rate today using a forward rate. A forward rate is set now for a specific date in the future, so the buyer and seller know exactly how much currency will be exchanged when the delivery occurs. This eliminates the risk of unfriendly moves in the spot rate between now and the future delivery date and helps with budgeting and pricing.

Spot rate refers to the price for immediate currency exchange, which isn’t appropriate for a transaction that will happen later. The current rate is generally another way of referring to today’s rate, not a mechanism for hedging a future delivery. A swap rate comes from currency swaps, which involve exchanging streams of payments over time, not a one-time future purchase. The forward rate is the tool designed for locking in costs for a future delivery.