Question

Company A pays $10,000,000 USD to Company B; Company B pays $198,000,000 MXN to Company A. What type of financial transaction is this?

A) Bilateral trade agreement

B) Currency exchange transaction

C) Barter transaction

D) Cross-currency payment

Answer 1

A transaction where Company A and Company B exchange money in different currencies, USD and MXN, is classified as a Currency exchange transaction. This type of transaction is crucial in the context of international trade, with exchange rates determining the relative value of the currencies involved.

Step-by-step explanation:

When Company A pays $10,000,000 USD to Company B and Company B pays $198,000,000 MXN to Company A, this financial transaction is best described as a Currency exchange transaction. This is because both companies are trading amounts in different currencies, and such transactions are essential in facilitating international trade. During a currency exchange, the value of one country's currency is determined with respect to another country's currency, based on current exchange rates. This is what allows different countries to conduct business transactions with each other, despite using different currencies.