'RareEarth Imports' is based in the UK and must pay a supplier in USD in 3 months. The finance manager is choosing between a forward exchange contract and a money market hedge.

Which of the following is a characteristic of a forward exchange contract compared to a money market hedge?

A forward exchange contract is a binding agreement made today to exchange currencies at a fixed rate at a specific future date. It requires no upfront cash flow. In contrast, a money market hedge involves immediate cash flows (borrowing in one currency, converting at spot, and depositing in the other). Neither method allows the user to benefit from favorable exchange rate movements (unlike currency options).