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.

forward exchange contract

a 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.
References in periodicals archive ?
Thus, table 2 below depicts the differences and similarities of forward exchange contract and Islamic FX forward which is also known as Promisory forward exchange contract.
1 billion yen, reflecting forward exchange contract gains.
Enter into a foreign currency forward exchange contract, designating the transaction as a fair value (asset exposure) hedge.
To insure against this happening, the firm can, at the time it receives the order, take out a forward exchange contract.
Currency Risk -- traditional solutions such as forward foreign exchange and 24-Hour Market Watch, to more innovative solutions such as the bank's new flexible forwards (providing clients with the security of a Forward Exchange Contract and the flexibility of a Currency Option);
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.
In effect, the risk is transferred to theother party in the forward exchange contract.
It could do this by entering into a forward exchange contract (an agreement to exchange different currencies at a specified future date and at a specified rate of exchange) with its bank on January 1 to sell 1 million [pounds] on May 1.

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