forward exchange contract
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.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
forward exchange contracta contract to exchange a given amount of one foreign currency for another at a specified future date (usually one or three months ahead). For example, if a UK importer is due to pay $100,000 for materials in three months' time, then in order to guarantee the pound cost of these materials it might cover the transaction by entering into a forward exchange contract to buy $100,000 for delivery in three months' time in return for a given amount of pounds, the amount of pounds being determined by the forward exchange rate. See FORWARD MARKET.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson