What describes a swap contract?

A swap contract typically involves the exchange of cash flows or financial instruments between two parties, and one common form is in the context of currency swaps. In a swap contract, one party may purchase an asset (such as a currency) at the spot price while simultaneously agreeing to sell an equivalent amount at a future date. This mechanism allows businesses and investors to manage their exposure to exchange rate fluctuations or interest rate changes by locking in specific rates for future transactions.

This being said, the other options describe different financial instruments. A forward purchase of currency is more directly related to hedging against future currency risks, being a separate financial tool designed for that purpose. An option to buy or sell foreign currency refers to a financial derivative that gives the holder the right, but not the obligation, to execute a transaction at pre-agreed rates, which is not characteristic of a swap. Lastly, a strategy to manage interest rate fluctuations focuses on interest rate derivatives rather than the asset exchanges typical of swap contracts.

Thus, the definition that mentions a spot purchase of an asset against a future equal amount sale encapsulates the essence of a swap contract, highlighting its primary function in the marketplace for managing financial risk effectively.