What characterizes currency futures contracts?

Currency futures contracts are financial derivatives that allow parties to agree on an exchange rate for a specific amount of currency at a predetermined future date. This characteristic—specifying an amount and exchange date at a given rate—defines the contract's structure and purpose.

These contracts are standardized and traded on exchanges, which means they have defined terms and conditions, facilitating liquidity and transparency in the foreign exchange market. By establishing the exact price and date for the currency exchange, participants can hedge against fluctuations in exchange rates, thus managing their foreign exchange risk.

The other options do not accurately reflect the nature of currency futures contracts. They are not customizable or negotiated privately (as in the first and last choices), nor are they limited to transactions solely between banks. Instead, they are available to a wide range of market participants, including corporations and individual traders, fostering broader participation in the currency markets.