Forwards

Posted by Scriptaty | 8:39 PM

FX forward contracts are transactions in which participants agree to exchange a specified amount of different currencies at some future date, with the exchange rate being set at the time the contract is entered into. Forwards are similar to futures contracts, except they are not standardized. That is, two parties can determine the size of the trade and the delivery date — aspects of a trade that are unalterable in exchange-traded futures.

Although there is no standard transaction period for forward contracts, typical time frames are one, two or three weeks, then in monthly intervals. The flexibility of a forward transaction is largely what makes it attractive.

FX forwards remove uncertainty, and are therefore common transactions to hedge risk for future business transactions denominated in a particular currency.

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