Forward exchange rate

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Forward exchange rate

Exchange rate fixed today for exchanging currency at some future date.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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
References in periodicals archive ?
Forward exchange rate contracts are used, among other things, to eliminate future spot exchange rate risk.
Therefore, the forward exchange rate can be expressed as:
* Agree today to exchange these 108,694.85 PKR 90 days from now at the 90-day forward exchange rate of 107.58 PKR per dollar, or for a total of $1010.363.
With a forward hedge, a firm can effectively eliminate foreign exchange risk by locking in the price of foreign currency (i.e., the forward exchange rate) at which the contractual amount is to be sold or bought.
(13.) Substituting other available forward exchange rate contracts extending out to 12 months, or even the simple change in the spot exchange rate itself, had no effect on the inferences drawn from the regression analysis below.
Equation (4) implies directly that the forward exchange rate is equal to the market expectations of the future spot exchange rate.
A., The Forward Exchange Rate, Expectations and the Demand for Money : The German Hyperinflation, American Economic Review (67: 1997)
Additionally, Glyndwer wanted to mitigate project exchange risks - and the risks of cost overruns - so entered into a range of forward exchange rate contracts with RBS CIB.
Assuming that the interest rate parity holds, the forward exchange rate will be 97.28 yen/dollar.
(5) The 'puzzle' is why does the forward exchange rate (that is, the exchange rate quoted today for the delivery and payment of funds on a future date) give biased forecasts of the spot exchange rate that will occur on the settlement date.

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