The correct answer is: A. (R) is a correct explanation of (A).
A futures contract is a standardized contract to buy or sell an asset at a specified price on a specified date in the future. A forward contract is similar, but it is not standardized and is negotiated between two parties.
The reason why a futures contract is not as flexible as a forward contract is because it is for a specific currency amount and a specific maturity date. This means that the buyer and seller of a futures contract cannot change the terms of the contract once it has been agreed upon. In contrast, the buyer and seller of a forward contract can negotiate the terms of the contract, such as the currency amount and maturity date, up until the contract is settled.
The assertion (A) states that a futures contract specifies in advance the exchange rate to be used, but it is not as flexible as a forward contract. The reason (R) states that a futures contract is for a specific currency amount and a specific maturity date. These two statements are related because they both describe the characteristics of a futures contract. Therefore, (R) is a correct explanation of (A).
The other options are incorrect because:
- Option B is incorrect because (R) is not a complete explanation of (A). (A) also states that a futures contract is not as flexible as a forward contract, but (R) does not explain why this is the case.
- Option C is incorrect because (A) and (R) are related to each other. (A) describes a characteristic of a futures contract, and (R) provides a reason for this characteristic.
- Option D is incorrect because (R) is relevant for (A). (R) provides a reason for the characteristic of a futures contract that is described in (A).