Foreign currency forward contract

Foreign currency forward contract

Agreement that obligates its parties to exchange given quantities of currencies at a prespecified exchange rate on a certain future date.

Forward Currency Contract

An agreement between two parties to exchange two currencies at a given exchange rate at some point in the future, usually 30, 60, or 90 days hence. A forward currency contract mitigates foreign exchange risk for the parties and is most useful when both parties have operations or some other interest in a country using a given currency. Forward currency contracts are over-the-counter contracts.
References in periodicals archive ?
The change in fair value of a foreign currency forward contract designated as a fair value hedge is recognized currently in earnings in the same line of the income statement as the foreign currency exchange gain or loss on the underlying asset or liability.
* Foreign Currency Forward Contract: On September 18, 2018, the Company entered into a foreign currency forward contract in the amount of [euro]1.625 billion related to the anticipated cash portion of the purchase price of EHG.
-- The fair value of a foreign currency forward contract will be affected by changes in the exchange rate, and the fair value of a put option for an available-for-sale security will be affected by changes in the fair value of the underlying security.
For example, assume a taxpayer undertakes to purchase a piece of equipment to be used in its trade or business and simultaneously enters into a foreign currency forward contract (because the contract price was denominated in a foreign currency) to "fix" the price of the equipment in U.S.
This exposure can be mitigated through a foreign currency forward contract.
Therefore, gain or loss arising from a disposition or settlement of a foreign currency forward contract generally ought to be ordinary in character, regardless of whether the contract represents a foreign currency contract under Sec.
However, for guidance on determining the fair value of a foreign currency forward contract, CPAs should look to Statement no.
The proper treatment of foreign currency forward contract hedges of assets and liabilities denominated in a foreign currency is not easily discernible from the examples provided in the relevant statements (SFAS 52, Foreign Currency Translation; SFAS 133, Accounting for Derivative Instruments and Hedging Activities; SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of SFAS 133; and SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities) or from the implementation guides from the FASB Derivatives Implementation Group (DIG).
They also invest in their unhedged parent ETFs--iShares MSCI EAFE (EFA), Germany (EWG) and Japan (EWJ)-- and implementing foreign currency forward contracts, the hedged ETFs provide a way to mitigate unwanted currency risk.
By investing in their related unhedged, parent iShares ETFs (EFA, EWG and EWJ) and implementing foreign currency forward contracts, iShares Currency Hedged ETFs provide an easy and cost-effective way to mitigate unwanted currency risk.
As a result, income before foreign currency forward contracts (gains)/losses, finance and income tax expenses of CAN 7.0m decreased CAN 591k, or 8%.
Moreover, Field Service Advice (FSA) 200025020 (issued prior to Notice 200381, which was modified and supplemented by Notice 2007-71) provided the following reasoning: Although the definition of a foreign currency contract provided in 1256(g)(2) may be read to include a foreign currency option contract, the legislative history of the Technical Corrections Act of 1982, which amended 1256 to include foreign currency contracts, indicates that the Congress intended to extend [section] 1256 treatment only to foreign currency forward contracts that are traded on the interbank market.

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