Forward exchange rate


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Forward exchange rate

Exchange rate fixed today for exchanging currency at some future date.

Forward Foreign Exchange Rate

The agreed-upon exchange rate for a forward contract on a currency. When a forward contract is made, the parties agree to buy/sell the underlying currency at a certain point in the future at a certain exchange rate. The rate is negotiated directly between the parties, unlike a futures contract, which trades on an exchange. Partly because there is little secondary market for forward contracts, determining the forward foreign exchange rate is a zero-sum game: one party will gain on the contract and one will lose, depending on the movements of the relevant currencies between the formation of the contract and its maturity.
References in periodicals archive ?
ICBC offered forward exchange settlement service to the enterprise, fixing the forward exchange rate of USD against RMB in three months at 6.
Assuming that the interest rate parity holds, the forward exchange rate will be 97.
In an efficient market forward exchange rate is the sum of the expected future spot rates plus the risk premium (Byers, Peel, 1991).
5% for the dual currency Eurobond, and 8% for the US dollar bond) and corresponding forward exchange rate.
Stationarity tests were initially carried out on the logarithm of the spot and forward exchange rate series reported in Table 8.
As equation (1) must approximately hold all the time, intervention that changes the forward exchange rate must also change the spot exchange rate.
For this reason, we have chosen to estimate the distribution over the relative deviation from the forward exchange rate instead of different exchange rate levels.
This condition derives from two components: (1) the arbitrage condition of covered interest parity, which states that the forward exchange rate relative to the spot exchange rate equals the difference in interest rates (and which is well substantiated in the data), and (2) the hypothesis that the forward exchange rate equals the expected future spot exchange rate.
Most firms grossly overestimate the cost of hedging their foreign exchange exposure; the effective comparison is between today's forward exchange rate and the estimate of the spot exchange rate on the date the forward exchange contract matures, for an extended series of transactions.
f + e = 0), where f is the forward exchange rate), the risk premium is equal to the difference between the forward exchange rate and the expected future exchange rate.
At one time, it was assumed that the forward exchange rate represented the market's expectation of the actual future value of the exchange rate.
If one defines the risk premium, RP, as the difference between the forward exchange rate and the corresponding expected future spot exchange rate, then (assuming a continuous time framework and covered interest rate parity) it is easy to show that [Mathematical Expression Omitted] where * is the nominal return in country 0 on asset 0 (country 0's nominally risk-free asset), * is the nominal return on country j's riskfree asset in j, and E([dS.

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