Currency Forward

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Currency Forward

An agreement between two parties to exchange a certain amount in currencies at a certain rate at a certain time. When a forward contract of any sort is made, terms are negotiated directly between the parties, unlike a futures contract, which trades on an exchange. Partly because there is little secondary market for forward contract, determining the forward price is a zero-sum game: one party will gain on the contract and one will lose. Thus, in a currency forward, each party believes that the prevailing exchange rate will move in a direction favorable to him/her by the expiry of the contract.
References in periodicals archive ?
The Fund also uses enhanced income strategies by engaging in dividend capture trading; option overwriting; and realization of gains on the sale of securities, dividend growth, and currency forwards. There is no assurance that the Fund will achieve its investment objectives.
Meanwhile, foreign central banks are holding the line on low interest rates for now, lagging the Fed and widening the yield spread on short-term rates that determine relative hedging costs in currency forwards and cross-currency basis swaps.
Fund managers said Egypt's slide was at least partly due to jitters in emerging markets globally, although MSCI's emerging market equity index rose on Wednesday, and credit default swaps and currency forwards do not so far show heavy pressure on the Egyptian pound.
"If there is flexibility on the timing of a transaction, an exporter may wish to look at purchasing currency forwards where the exchange rate of a particular currency is locked in for a future date, but can be taken early if needed."
The insurgency in Iraq has not hurt overall market confidence in the Gulf; investors still see no direct impact on the Gulf Cooperation Council, where currency forwards and credit default swaps have not risen in response to Iraq.
"Now the spotlight in financial markets is focusing on the currency forwards markets.
Unhedged net derivatives included $48 million of credit default swaps, $229 million in interest rate swaps and less than $1 million of foreign currency forwards.
One-year Qatari riyal currency forwards, which have been pushed up by the Syrian crisis, continued to climb on Tuesday, reaching 180.01 points bid, the highest level since March 2010.
This fuelled speculation in the currency forwards market, which ultimately proved incorrect, that they might have to abandon their pegs.
The fund utilises currency forwards with a directional bias in the “carry” component of the strategy.
Three-month onshore currency forwards traded at 56.96 per dollar, compared to 56.92 on Monday, and offshore non- deliverable contracts were at 57.09 from 57.07.