In foreign exchange, what defines a forward transaction?

A forward transaction in foreign exchange is defined as a currency exchange that occurs at an agreed-upon rate for a future date. This means that two parties agree to exchange a specific amount of one currency for another at a predetermined exchange rate, but the actual transaction will take place at a specified date in the future rather than immediately.

This mechanism is primarily used by businesses and investors to hedge against the risk of fluctuating exchange rates. By locking in an exchange rate today for a future transaction, the parties involved can better manage their financial planning and exposure to currency risk.

The other options do not accurately capture the essence of a forward transaction. For example, a transaction at a fixed rate occurring immediately refers to a spot transaction, which is different from a forward agreement. Simultaneous exchanges of multiple currencies typically refer to currency swaps or other types of transactions rather than a forward contract. Lastly, a right to buy currency that is set to expire is more aligned with options trading, which does not describe the forward agreement structure. Thus, the definition provided captures the core concept of what a forward transaction is in foreign exchange.