Directions: Below are given statements. You have to take the given statements to be true even if they appear to be at variance with commonly known facts, and then decide which of the given conclusions logically follows from the given statements. For each question, mark out an appropriate answer choice that you think is correct.
Statement:
The foreign exchange market deals with transaction risk i.e. the interest to be paid may rise or fall due to the changing exchange rates in the future. To solve this problem, parties get into Forward Rate Agreement. According to the agreement the party needs to pay the amount on the agreed interest rate and not the prevailing rate.
What could be the aim of the Forward Rate Agreement?
To prevent conflict amongst parties relating to interest rates.
To determine the interest rate.
To lock a target interest rate and prevent both favourable and adverse interest rate movements.
To increase the rate of interest.
To encourage adverse and favourable interest rate movements.